What a difference a few short months make in the Government's view of the world. It seems but a moment ago—the mere passing of slight time—that I was standing at the Dispatch Box extolling the virtues of abandoning a council tax revaluation, only to be met with vitriol and abuse from Government and Liberal Democrat Members. In fact, it is only the Liberal Democrats who remain in favour of an immediate and complete revaluation. Three times that once great party has voted for revaluation and I suppose that those votes were not entirely wasted. In modern politics, we are supposed to have a degree of empathy with other people and the Liberal Democrats can now feel empathy with Labour Back Benchers, because they also now know how it feels to be let down by Labour.
The Government were steely in their determination to bring about revaluation and unwavering in their support for an immediate one. For example, the Prime Minister commented in the Daily Star on the Conservative pledge at the last general election to cancel revaluation. He said:
"It's a complete con. From the Conservatives this really is the most desperate opportunism."
We had an even more robust view from Mr. Raynsford—it is a pleasure to see him in his usual place—in July, when he said:
"it is intellectually and economically illiterate to suggest that one can have a system of council tax without a need for periodic revaluation. That is why we introduced arrangements for a regular, 10-yearly revaluation."—[Hansard, 4 July 2005; Vol. 436, c. 51.]
I expect that he was surprised when, within 11 short weeks of those words, they blew up in his face. I would not have liked to have been in the Minister's shoes when he made the phone call to tell the right hon. Gentleman that all his hard work had been torn up as soon as he left office.
What has caused the Government's near Damascene conversion to the Conservative position? I say "near" because the Government propose a postponement, not a cancellation. There are two possible explanations for the U-turn. The written statement on
"The case for council tax revaluation . . . is linked to wider questions about the structure of the council tax, and to the operation of council tax benefit. It is also relevant that there are a number of other imminent changes in the local government finance system, including the move to three year budgets, the review of the local government finance formula, and the creation of a dedicated schools budget."—[Hansard, 10 October 2005; Vol.437, c. 5–6 WS.]
I was surprised only that the statement did not add that the revaluation had to be postponed because the letter "r" appeared in the month of September. Every single thing mentioned in the statement was known when the Lyons review was set up and revaluation was planned.
The second explanation therefore has a ring of truth, and it comes from the mouth of the Minister of Communities and Local Government. When asked outside the Table Office by one of his colleagues from the west midlands why the Government had postponed the revaluation, he said that it would be too difficult, too hot to handle and had to be dropped. It is a sad fact that, on occasions in this place, having a clear voice can be a disadvantage.
This is not a policy; it is a postponement for others to pick up when the Minister has moved on to pastures new. Many will agree with the judgment of the right hon. Member for Greenwich and Woolwich, who wrote in this week's Municipal Journal that the Government had a
"loss of nerve over revaluation".
Why revalue? A myth has grown up around the need to revalue, but it is a conventional wisdom that needs to be challenged. I know that because I was once seduced by the conventional orthodoxy. I was once persuaded that the emperor was wearing a shiny new suit rather than being naked of ideas or legitimacy. I was not alone. Even such august bodies as the Royal Institution of Chartered Surveyors have been persuaded that the emperor is not in the altogether. In its otherwise excellent brief prepared for this debate, it states:
"Fundamental to the fairness of the tax base for Council Tax is an up to date valuation list supported by frequent and consistent revaluations. The current valuation list is based on 1991 values. Since 1991 . . . average house prices have increased by some 216 per cent."
"Statutory revaluations will take council tax further towards being solely a property tax . . . Council tax was originally devised as a tax which was part property based and part service based."—[Hansard, House of Lords17 July 2003; Vol. 651, c. 976.]
When the council tax was first introduced, there was no provision for revaluation. The purpose of a revaluation is to correct grossly disproportionate movements in the housing market. It may be that, over a 10-year period, those movements are negligible, and that going through the expense of a revaluation cycle is unnecessary. What matters in council tax valuation are comparative prices between different parts of the country. Those have remained unchanged for the last decade. That is why Northern Ireland has operated quite happily on valuations set 30 years ago and that is why Scotland's First Minister, Jack McConnell, has been at pains to make it clear that
"There are no plans for a property revaluation in Scotland for the council tax or for any other purpose".—[Scottish Parliament Official Report,
The hon. Gentleman is making an interesting speech, but is he saying that he would never favour a revaluation? Would he support a revaluation if property prices were to diverge?
I could not make it clearer that the Conservative party would support the abandonment of the revaluation. It is absurd to pursue revaluation when there is no divergence in the property market and the Government propose to postpone it. Why spend millions of pounds on a revaluation for no purpose? Would not that money be better spent in our schools, on teachers and children? Would the hon. Gentleman prefer that money to be spent on computer programmes?
In which case, why did the hon. Gentleman tell the House that
"Any council tax system inevitably requires some form of revaluation."—[Hansard, 2 February 2005; Vol. 430, c. 929.]
That does not work. The Minister may recall the last opportunity we had to debate this issue, when I stood like a supplicant before the inquisition, confessed that I had made a mistake and apologised to the House. Where is the gracious response from the Minister? He should encourage such forthright confession. I admit that I was fooled, but I have realised that the emperor is naked and a revaluation would be pointless. People should be prepared to admit when situations have changed. The Minister presumably wishes to try to persuade me that the emperor is wearing a handsome suit.
As it appears that hon. Members on both sides of the House are making a virtue of making U-turns, can the hon. Gentleman tell us why he is not prepared to take his logic further? When a property changes hands it is subject to revaluation, so why does he not propose that that should also cease?
Because that falls within the existing rules and, over a period of time, there would naturally be a change. I understand why the right hon. Gentleman wants to pursue the original policy. Indeed, in my mind's eye, I can see the great handover between him and the Minister of Communities and Local Government. There may have been a glass of sherry. Pleasantries were uttered and, to be helpful, the former Minister handed the new Minister an envelope—[Interruption.] The Minister says that it was a six-course dinner. How very new Labour. No doubt there was a choice of wines.
To be helpful in a time of trouble, the right hon. Member for Greenwich and Woolwich told the Minister, "I'll leave you some advice. I'll leave you three envelopes." The Minister made the mistake of opening the first two envelopes, which said, "Blame me", and "Send things to a restructuring committee." The Minister has only one envelope left, and he knows what it says—"Prepare three envelopes".
I have listened to the hon. Gentleman's arguments carefully both today and in previous debates. Is he saying that he stands by everything in the Conservative Government's introduction of council tax, including the consultative paper, "A New Tax for Local Government", which certainly mentioned rebanding and revaluation? Does he stand entirely by that, except for revaluation, or is he suggesting that there should be a new council tax or a completely new tax? If so, it would be interesting to hear what it is.
I think that I can rely on the assessment of the incoming new Labour Government. Perhaps I may be permitted to quote from their document "Modern local government: in touch with local people", which states:
"The council tax is working well as a local tax. It has been widely accepted and is generally very well understood. This has been borne out by the responses received to the consultation paper."
We have established that the same level of valuation has existed in Northern Ireland for 30 years. Scotland will have none of it, while Wales has seen the effect of revaluation, which I suspect played a part in the Government's decision to make a U-turn. However, the full effects of revaluation in Wales have yet to be felt. In 2005–06, initial bills were kept down by transitional relief to limit sharp increases, yet most of that relief is for only one year, meaning further automatic tax hikes next year. Relief is to be phased out completely within three years. Why should the Welsh have to suffer when the English are temporarily spared? When the postponement Bill is debated, we shall move amendments to retain transitional relief for Welsh revaluations until decisions in England have finally been made.
I thank my hon. Friend for pointing out that people in Wales are being treated as second-class citizens in the United Kingdom. Over the past few years, they have been confronted with council tax rises of up to 130 per cent. as a result of the Labour Administration in the Welsh Assembly. Will he do everything possible to ensure that our motion is carried and that Wales is treated fairly, in line with the rest of the UK?
My hon. Friend makes a powerful point. What happened in Wales demonstrates clearly what would happen in England. The Conservatives are determined not to abandon the Welsh people.
Is not the simple truth that council tax rebanding is just another stealth tax? In my constituency, there will be a double whammy. House price increases are up to 13 per cent. higher than the regional average over the past year and all those houses will face rebanding, with bills soaring by more than £300 a household. At the same time, Hampshire county council is warning of an inflation-busting council tax rise next year because it received one of the lowest grants in the country. Is not it time to scrap rebanding?
My hon. Friend is right and makes a powerful point. Given the announcement of the postponement of that stealth tax, we might say that the stealth tax has fallen to a stealth axe.
I am certainly aware that, in the hon. Lady's constituency, council tax has gone up by eight times the rate of inflation, but there was a constitutional settlement in Wales—we had a devolved settlement—[Interruption.] The Under-Secretary of State, Jim Fitzpatrick, says from a sedentary position that that was not in our motion, but he will recognise that the House set up the National Assembly for Wales, so we should not shirk our responsibilities. It is a pitiful sight when Labour Members of Parliament and Assembly Members try to blame each other for those savage rises.
Although I accept that all parties recognised the principle of revaluation, does the hon. Gentleman agree that the real issue is Labour's inability to implement that process in anything that resembles a just and fair settlement? As a result, council tax has not only become random, but it hits the people—often the elderly—who can least afford to pay the increases.
I shall certainly come to those points. The relationship between revaluation and its effects on total tax take and resource equalisation is something that I could go on about for hours, but I know that Welsh Members will want to make those points.
The costs of revaluation were spiralling out of control. In 2004, the Government estimated that revaluation would cost £108 million, but by 2005 the figure was £178 million, an increase of almost two thirds. Millions of pounds were lost before postponement and it is a criminal waste to continue the process and spend more.
As I demonstrated in my quotation from the Government White Paper, council tax was working well before Labour took over. It was well understood and was popular—if that is possible for a tax. Under the Labour Government, council tax has become deeply unpopular. That is hardly surprising with increases of 76 per cent., or when the Government cap councils that increase council tax by a few pence a week yet ignore others where the increase is in pounds, or when pensioners are being thrown into prison—[Interruption.] Chris Bryant may find the spectacle of pensioners with a previously unvarnished record languishing in our jails amusing, but I do not. It is little short of a disgrace that he and his hon. Friends forced pensioners into that position.
Can the hon. Gentleman explain what his position was when he voted for the implementation of council tax? How did he imagine that increases in local government expenditure would be met in ensuing years? Did he think that council tax was a temporary measure, and if so what did he envisage would follow it?
Unlike the hon. Gentleman I voted against revaluation. Indeed, I voted against it three times. The only substantial problem with council tax is its size. It is unpopular because it falls disproportionately on the backs of poor people. It is little short of a disgrace that a third of the increase in the basic state pension is taken up by higher council tax for a typical pensioner. The Government's increased use of means-tested benefits and complex application forms has resulted in reduced take-up of council tax benefit, which means that more people on lower incomes are paying higher council tax. Fewer than two thirds of eligible pensioners claim the council tax benefit to which they are entitled, compared with more than three in four before Labour came to power.
Thanks to the Audit Commission, we all know why council tax has risen since Labour came to power. There are three reasons: changes in the grant formula, the implementation of often unfunded Government initiatives, and national pay rates. Each year, the fiasco drags on; each year, it gets worse. The imbalance between local and central Government funding grows, which, in turn, will force Ministers towards crude, universal capping in the vain hope that the public's ignorance of the arcane details of council tax gearing will pass the blame for the unacceptable increases on to local authorities.
The public have rumbled the Government. A stealthy postponement of the revaluation will not hide the true responsibility for Labour's favourite tax. The Local Government Association forecasts a £1 billion shortfall next year. Ministers may try to gag the LGA for a couple of weeks so that the result of the survey is not discovered, but trying to push issue upon issue into the long grass will not work.
I shall give way in a moment. I said that I wanted to make a little progress, and I have been very generous in giving way.
Those imbalances in the system and the effect of how a revaluation will hit the total tax take of each council are important. My hon. Friend Mr. Hammond is not here, but I had the opportunity of going through his council's budget in some detail not so long ago. The more that that council raises in council tax because of the higher bandings that occur, the less it receives in grant and the more it must put up council tax, so the risk of capping is greater. That is not a sensible way to run local government finance.
I am very pessimistic about the Lyons review. I have no great hopes for its deliberations. After all, the Lyons review was originally set up as a device to avoid taking a decision. It was the ultimate long grass into which to kick the Government's balance of funding review. Just when the Government were beginning to hear the odd stirrings from the undergrowth, they gave it another substantial kick backwards, and we can still hear it pinging around the shrubbery. We have indications of the issues that Sir Michael is considering because we know that the Government are looking at them too.
The hon. Gentleman was talking about Wales and the fact that there was unfairness in the way that the council tax was made up and that it was unhelpful for some pensioner groups. The Welsh Assembly Government changed the spending assessment to help the poorest local authorities, yet the Conservative group in the Welsh Assembly voted against that change. How does he square that circle?
I shall give the hon. Gentleman a serious, non-partisan answer. I have rapidly come to the conclusion that council tax is too crude an implement to be used for social engineering—that goes to the heart of the dilemma—and in a few moments, I shall make some suggestions about how we can improve it. The situation has become complex and difficult. That is not a party political view.
The hon. Gentleman has identified the balance of funding crisis as a problem in the steep rises in council tax year on year, but what are the Conservative party's proposals for addressing that imbalance? What about localising business rates, for example?
The hon. Lady has attended many debates in which we have given a whole list of measures, such as removing a lot of restrictions on local authorities and freeing them up. [Interruption.] That would make a significant difference, but I am about to make some other suggestions in a few moments if the hon. Lady will be patient and not just rely on interventions drafted by her researcher.
Will the hon. Gentleman put clearly on the record his view of the decision that was taken in the Welsh Assembly, where a proposal opposing revaluation could have been made by any Opposition Member, but not a single vote was registered in opposition to revaluation in Wales? Were his own colleagues—some of whom are present now, with a dual mandate—wrong not to vote in opposition?
I wonder whether my hon. Friend is aware that Members of the Welsh Assembly voted to support revaluation when they were specifically told by the Labour Minister responsible for local government that there would be as many winners as losers. They had no conception that she could have misled them by creating a system whereby one in three people were moved up by at least one band—two or three bands in several cases—and only one in eight went down.
On an entirely non-partisan point, I should like to take the hon. Gentleman back to his earlier confession of his change in point of view, because it would be interesting to know more about it. There are some real problems with revaluation whenever it is undertaken. Often, it is not just the house price at a certain moment that is of importance, but how it has changed over the past three, four or five years. For example, in the Rhondda we had virtually no house price changes for several years, but suddenly over the past three years we have had dramatic changes in house prices. In the past year, they have gone up by 56 per cent. Sometimes, it can seem extremely unfair merely to base revaluation on a snapshot. I wonder whether the hon. Gentleman would like to reconsider the Tory party position. Although delay might be a good idea because we might need to ensure that any future revaluation is more sane than other revaluations that have happened, I merely point out to him that, in the Rhondda, quite a lot of people went down a band, not up.
I think that council tax has gone up by eight times the rate of inflation in the hon. Gentleman's constituency, so I can understand the pain that he feels. However, the important point is not the relationship between individual properties in Rhondda, but how that affects the difference between prices in our constituencies and the relative values in the various parts of the United Kingdom. A revaluation should exist for the process of realigning the housing market, but the rise in the market is not out of line and is much the same as 10 years ago. I suppose that there was a time when it looked as though it was starting to get out of line. That is why we consider such things over a long period. A decent period is needed for the housing market to readjust.
Does my hon. Friend agree that the debate is somewhat missing the point? It is not a question of preventing future rises in council tax. The current level of council tax is unacceptably high. Even if we introduced a system that pegged the current levels, it would not be good enough. We need to consider radical reform to reduce current bills.
My hon. Friend is absolutely right. If the debate is missing the point, all I can say is that I am doing my absolute best. Ultimately, there would have been no U-turn nor any question of revaluation but for the fact that council tax has simply got out of control.
We know what Sir Michael is looking at because we know that the Government are looking at it. We know that Northern Ireland is being selected as a guinea pig, with discrete capital values, which would make the council tax more progressive and target social needs. In plain English, council tax bills in Northern Ireland will soar. Northern Ireland is being selected for another experiment that involves a variation on the council tax: the death tax, in which a deferred local tax bill can be paid by pensioners. Vulnerable people must either forfeit their children's inheritance or face the prospect of bailiffs at the door.
Yes—another smash-and-grab raid against middle England's savings. Only the Labour party and the Minister of Communities and Local Government could find ways to pursue poor people beyond the grave—[Interruption.] Apparently, it is suggested from a sedentary position that the Under-Secretary is at fault. Nevertheless, the right hon. Gentleman must accept some responsibility.
We know that the Government are examining information technology as a way of bringing in more money. They sent out a questionnaire on tax rebanding to IT firms in which they asked about four additional council tax bands and higher band multipliers so that people in higher bands would pay more money, although the band of their properties had not changed. They have suggested cutting eligibility for discounts and exemptions. They have also considered discount schemes to cushion millions of council tax payers who move up two or more bands. The Government claim that the suggestions are not proof of likely reforms, but if that is the case, why are they asking such questions?
The Lyons review is just another depressing example of the ping-pong between structure and finance. We seem to go through a process of trying to change the way in which local councils are financed or structured. Revaluation and regionalism are two extremes of the massive ping-pong process. That is a great pity, because changes in local authorities are taking place without anyone really understanding their impact. Strategic partnerships and local area agreements clearly show how adaptable local authorities can be.
I firmly believe that function and finance are two sides of the same coin. If we were sensible, we would give local authorities the ability to share their sovereignty, responsibilities and resources. We would allow money to follow services and function to determine structure. Local authorities with a common concern could thus band together to provide better services for their electorates. It will be a good thing if Lyons recognises that change, but it will be bad if the review just leads to a further extension of the salami-slicing that has affected local government for so long.
Local government is one of the most adaptable of our institutions. We should give it freedom, and instead of trying to control the way in which local grant is distributed, we should allow money to follow services. We should work for local diversity. If we could do that, we would have the chance of building a real consensus, instead of worrying about the knock-on effects of one specific change.
For too long I have been listening to debates in this Chamber during which we have put together various schemes that have required transitional periods. Those periods become complicated, so another scheme comes along, which requires another transitional period that must be related to the first transitional period. That process must stop. We have an opportunity to give local government its head and some freedom, and that is essentially what new localism should be about.
I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof:
"welcomes the Government's decision to postpone the revaluation of council tax in England in order that it may take full account of Sir Michael Lyons's further work on the functions of local government as well as its financing;
supports the Government's extension of Sir Michael's terms of reference, which will enable him to review the strategic role of local government and therefore set any proposals for the reform of the funding system within the context of that role and of councils' accountability;
recognises that the devolution settlement for Wales gives responsibility for council tax matters to the National Assembly for Wales, and that the context for rating reform in Northern Ireland is very different from that in Great Britain;
refutes any suggestion that Northern Ireland is being used as a testing ground for reform in England;
and looks forward to the final report of Sir Michael Lyons's inquiry which it is confident will provide a real opportunity for fundamental and lasting reform."
I am delighted that the Opposition have chosen to debate this issue. I was genuinely thrilled when I found out the date of the debate, because I now have the opportunity to put on the record the Government's future intentions on policy and to respond to criticisms that have been made outside the House. I genuinely welcome the debate.
The last time that we debated council tax in the House was
The announcement of
May I put the situation on the record, after which I will be more than happy to take interventions?
Given the importance of the announcement and the widespread interest in it, I regret that we were unable to make it when the House was sitting.
May I put the background on record? Then we can move on to policy points.
My right hon. Friend the Minister of Communities and Local Government wrote at the time to all hon. Members with English constituencies to explain the decision. No discourtesy at all was intended to you Mr. Speaker, or to the House.
There has been a huge amount of posturing by the Government's opponents and a lot of misinformation has been produced about the revaluation decision and policy, so the debate is a useful opportunity to clear the air and get the facts straight before we debate the Bill to postpone revaluation, which received its First Reading on
The House will recall that the Government appointed Sir Michael Lyons in July 2004 to carry out an independent inquiry into local government funding. He has made good progress with that remit and I should stress that the original remit stands. We have extended the remit, not replaced it. Sir Michael has discussed with Ministers his work so far. His initial conclusion is that well-founded recommendations on possible reforms to the funding of local government cannot sensibly be made in isolation from a proper consideration and understanding of the developing role and functions of local government, not only by central Government but by the population at large.
Sir Michael has made it clear that any proposals for reform of the funding system raise complex issues. The Government have agreed that they need to be set firmly and explicitly in the wider context of a clear and shared understanding of the role of local government and of the accountability of councils to service users, residents and taxpayers. It was for that reason that my right hon. Friends the Chancellor of the Exchequer and the Deputy Prime Minister extended the terms of reference of the inquiry.
The Government have agreed with Sir Michael that he will review, through a series of discussion documents, the current and emerging strategic role of local government in the context of national and local priorities for local services, including the implications of that for accountability. He will also review how the Government's agenda for devolution and decentralisation to local councils, together with changes in decision making and funding, could improve local services, the responsiveness of those services to users and, of course, local authorities' financial efficiency. In the light of that work, Sir Michael will address critical funding issues, including fairness, accountability, clarity, efficiency and effective management. He will produce his final report at the end of 2006. I know that when taking forward the new remit Sir Michael will want to work closely with local government as well as drawing on the assistance of Government Departments. I hope and expect that other parties present will participate in those discussions.
The additional work that Sir Michael will undertake will add value to the Government's current work on a strategic view of the role and functions of local government under the local vision programme, about which I shall say more later. It will also contribute to the comprehensive spending review 2007, which will set the path for local government funding for the medium term. To set the scene for that work, later this autumn Sir Michael will set out his preliminary thinking and publish research and analysis undertaken so far, drawing out the relationship between local government function and finance.
It is obvious to everyone that the future of local government is critical to the future of the country, of local communities and of individuals.
I thank the Minister for his kindness in giving way. I am in the business—or at least my business is in the business—of data collection, databases and related matters, and I can tell him that the average database degrades at a rate of 15 per cent. per year compound. Given that, does he accept that the data collected over the past two years will be almost totally useless?
No, I do not. The hon. Gentleman regards that as a valid point, but he misunderstands the one that I was trying to make. Ministers, rightly, must listen to the advice of the Valuation Office Agency. The figures that I have put before the House in written answers and here today are the agency's figures and I have to take its advice. I doubt that the hon. Gentleman would like it if Ministers strode around pretending to be experts on software programming.
The Minister will be pleased to learn that my question is not about software. He said that the research papers would be published in the autumn. The leaves are now falling; when does he think that autumn will have ended? Are we talking about next week, or some time in November, or will we have to wait until the actual end of autumn, which is
Autumn is defined as the period before Christmas. My right hon. Friend the Minister of Communities and Local Government answered this question during oral questions a short while ago. The scene-setting report is expected this term, but we do not have a specific date. To be serious, Sir Michael's report is independent and the process that he follows is under his control.
I fully understand the logic of a wider remit for a full-scale review, but will my hon. Friend touch on how it relates to Wales, where local government functions are a devolved matter? Is a parallel process expected to take place in Wales? Will the Minister discuss the ramifications with the Secretary of State for Wales and the First Minister? Although the finances translate across England and Wales, the detailed restructuring of local government has significant implications from the point of view of the Welsh Assembly Government.
My hon. Friend makes a valid point. Our policy is that matters relating to local government in Wales are, rightly, devolved. Having said that, there is a relationship, which is why I have been engaged in correspondence with my counterpart in Wales and why meetings are due to take place as the process unfolds. Whether the shape of the debate is the same in Wales as in England is a matter for Welsh representatives, but I am aware of the interaction between the two.
I was outlining the importance to the country and to communities of the role of local government. That has to be placed in the context of our manifesto commitments to public service reform. From continuing the improvement in our schools to making social services more responsive to the people who use them, local government will be in the forefront of driving up performance. However, the communities that our local councils serve are growing ever more diverse, with a greater range of needs and higher aspirations than ever before. We should celebrate that, but we should also acknowledge that it means that local government's role will have to change along with the communities that it serves.
There are several pointers to that debate, in which we are now engaged. The local council must lead and represent the local area by harnessing the efforts of local people and representing their interests. It must lead the community through building partnerships with other local service providers, voluntary and community groups and the private sector. Hon. Members may know that every area in England will have a local area agreement by April 2007. In my view, local area agreements, whereby councils come together with other public service partners, the voluntary and community sector and the private sector to serve their area in a joined-up way, are a significant development in local government—one of the most significant developments since the second world war.
The debate on the role of local government within the local area agreement takes place alongside other debates—for example, the debate on neighbourhood and community empowerment, the debate on how we achieve a step change in service delivery to users, and the debate on how we involve the disadvantaged and improve services to them as well as to everyone else. Those significant local government changes are in the pipeline, which is why the decision to postpone the revaluation was the right one.
Does the Minister agree that the test of the worth of local area agreements will be based on highly practical issues—for example, the junction between the medical assessments of children with special educational needs and the services that they receive? Such children often cannot get the assistance that they require because the bodies involved do not communicate. Only if my LAA deals with specific issues such as that will I think that it is worth while.
I agree. I think that it was Chairman Mao who said that the goat that belongs to everyone starves to death. That is never more true than in the context of local services.
The point made by Andrew Selous is a serious one. Local area agreements help to join services together and ensure that objectives are shared. Crime can be tackled better if the police have the active co-operation and participation of other public service agents, such as schools, the probation service and local councils. That type of change is being driven forward in parts of the country and the best examples are showing the way to others. Sir Michael Lyons said on that subject:
"One of the strongest conclusions emerging from my work to date is that well-founded recommendations on possible reforms of the funding of local government need to be based on a clear understanding of the expectations and responsibilities of local government, which continue to change".
In other words, the responsible thing to do is to put reform of finance after the debate on reform of role and function.
I have been listening carefully to my hon. Friend and I understand entirely his point on the need for a wider remit for Sir Michael. Does he accept, however, that Sir Michael was not convinced of the case for a postponement of revaluation of longer than one year? Sir Michael has stated on the record that he understood why Ministers would seek to postpone for one year, but, by inference, he is not supportive of the Government's position.
In fact, Sir Michael did not even go that far: he said only that there was a case for postponement of a year. I acknowledge that he did not recommend a postponement such as the one that we announced. I hope that we have never given the impression that we are hiding behind Sir Michael. We have extended his remit because it is the job of Government to ensure that reviews of financing such as his complement other areas of public service reform and wider social and economic policy. The advancement of local area agreements to ensure that they cover the whole of England by April 2007 is a significant step change in our policy that builds on the tremendous work of my right hon. Friend.
I agree that local area agreements are a sensible and practical way of joining up things that have been divided because of the way in which central Government organise their financial regime for local authorities. Surely, however, local authorities themselves should join things up? If we allowed local authorities more flexibility to think across portfolio areas, we would not need mechanisms at the other end to join things up.
We would all agree with the sentiments behind that, but, although I hate to use the word, the hon. Lady is being naive. Of course, it is desirable that public service agencies work together and there are many good examples of them doing so. Local strategic partnerships existed for many years before Government guidelines were issued, and the best ones work well together. Public services use taxpayers' money, and the review is predicated on the belief that the funding system is not as fair as it could be. If we give that responsibility to local authorities, as devolution allows, we have to give them the financial mechanisms to work meaningfully with public sector partners. The hon. Lady has clearly never read Chairman Mao, who was absolutely right about that.
I will accept one more intervention before turning to the specifics of council tax revaluation. I have a duty to the House to do so before drawing my speech to a close.
Further to the question about deferral asked by my right hon. Friend Mr. Raynsford, has revaluation been postponed so that it can be implemented at the same time as any changes arising from the Lyons review—it will probably take four to five years in the legislative process to bring such changes into effect—or are the Government simply delaying and deferring revaluation until they know what Lyons is going to report on? Perhaps revaluation will start then pending any further changes.
My hon. Friend's question allows me to put the situation on the record again. In the statement announcing the postponement of revaluation, we made it clear that we did not believe that revaluation would take place during this Parliament. We went no further than that, and it is for Parliament to decide the future. Second Reading of the Council Tax (New Valuation Lists for England) Bill is imminent, giving us an opportunity to debate these issues in more detail. The decision rests with Parliament but, none the less, the Government's policy is that revaluation has been postponed, not cancelled. The exact timing partly depends on any actions that may arise from the recommendations of the Lyons report.
It is right to maintain a fair alignment between house prices and council tax bands. The case for council tax revaluation is linked to wider questions about the structure of the tax and to the operation of council tax benefit. A number of other changes in the local government finance system are in the pipeline, including the move to three-year budgets, the review of the local government finance formula and the creation of a dedicated schools budget located in the Department for Education and Skills.
Does my hon. Friend agree that one group suffers particularly badly from the way in which council tax is devised? By definition, housing association tenants do not benefit from the open market value increase of their property, so it is extremely unfair that they should be expected to pay towards that increase.
My hon. Friend has made an interesting contribution. It is because of such questions that I put the other side of the coin, which opponents of the council tax rarely acknowledge. A substantial proportion—13 per cent., I believe—of income generated by council tax is repaid through the council tax benefit system. Indeed, a pensioner on guaranteed pension credit does not pay council tax—[Interruption.] David Howarth was trying to make a point, but I did not quite catch it. I am sure, however, that I will answer his concerns in a few moments.
The Government have decided that it would not be sensible to proceed with the current timetable for revaluation. Sir Michael's analysis so far has led him to conclude that there may be a case, as I told my right hon. Friend Mr. Raynsford, for a delay of up to a year in the implementation of revaluation. However, the Government concluded that the balance of advantage lies with allowing the flexibility to revalue as part of a fully developed package of funding reforms, rather than as a precursor to them, and at a moment of greater financial stability for local authorities. That is the background to the decision.
I should like to make the Government's position on council tax quite clear. First, as we said in our response to the balance of funding review, we accept that council tax should be retained but reformed. That was why we appointed Sir Michael Lyons in the first place. Secondly, as I have said, we remain committed to council tax revaluation even though 2007 is not the right time for it. Council tax is related to property values. As we said in our 2001 White Paper, the Government fully recognise the importance of keeping property values up to date. That remains our position. We are postponing, not cancelling, revaluation. We need to ensure that we get revaluation and reform of council tax right, and that is why Sir Michael is conducting an extended inquiry. There was a great deal of unnecessary scaremongering by the Opposition about the effects of revaluation. Revaluation would not mean that individuals would pay more council tax just because their house had gone up in value. Nevertheless, many people believed that it would because of statements made to that effect. Many properties would stay in the same band. That has been made perfectly clear all along, despite reports that appeared in the press. Thirdly, the Bill that we have introduced and which we will debate in due course is simply concerned with timing requirements. All the other provisions are unaffected. I trust that the Bill will receive the full support of the main Opposition party, as it is keen to cancel the 2007 revaluation.
I must now address some myths and accusations about council tax. The Government are often accused of letting council tax rises get out of control. That accusation misses an important point. It is local councils that set council tax levels, not the Government. We have reserve capping powers, which we have used to deal with excessive increases over the past 2 years. There is no excuse for excessive council tax increases, but we should not confuse the principles of the council tax with council tax increases. There is an important difference.
I am afraid that, to be fair to hon. Members who wish to make speeches, I do not have time to give way.
Since coming to office, the Government have provided local councils with grant increases of 33 per cent. in real terms. Local authorities know that we are serious about capping and that we will use those powers if we have to.
The Government are also accused of under-funding local authorities by not paying sufficient grant and by letting unfunded pressures build up, despite the 33 per cent. real-terms grant increase to local councils. We will shortly be announcing the provisional local government finance settlement for 2006–07. That will see a move to three-year settlements for individual authorities, with allocations for the authorities covering next year and 2007–08. We will also be announcing individual allocations for those two years for specific grants which it is possible to allocate in advance. For others, such as performance-related grants, it is not possible to do so.
After the considerable extra funds provided this year—an increase of 6.3 per cent. overall compared with last year—and the transfer of schools funding, the overall increase in formula grant for local authorities is likely to be lower than in previous settlements. However, it is important that the spending power that this grant will deliver for authorities is taken into account. Because of the shift to 100 per cent. Government funding of schools, council tax will fund more of the other local services, so unless the whole picture is looked at, the increase next year cannot be compared with grant increases in earlier years.
It is often said that the present system is unfair to pensioners. The Government recognise the concerns of many pensioners, particularly those on low or fixed incomes, about excessive council tax increases. However, as I have already said, it is local authorities, not central Government, that set the increases in council tax. Keeping council tax increases down is only one side of the coin; improving pensioner incomes is the other. We have already done a great deal in that regard, spending nearly £11 billion extra on pensioners in 2005–06, compared with 1997. On average, after allowing for inflation, pensioner households are about £1,500 better off this year than they would have been under the system that operated in 1997. The least well-off third of pensioner households are, on average, £2,000 better off.
We are providing money to pensioners specifically to help them pay their council tax bills. We gave £100 to households with someone aged 70 or over in 2004–05. In 2005–06 households with someone aged 65 or over will receive an extra £200. The money will usually arrive with their winter fuel payment and is in addition to that, unless they are receiving the pension credit guarantee. People getting the guarantee element of pension credit are already entitled to a 100 per cent. rebate of their council tax bills. Households with someone aged 70 or over getting the pension credit guarantee will receive £50 to help with general living costs.
We need to look at both sides of the coin when we discuss the funding of local government. I look forward to the debate and I am keen to hear hon. Members' views as a contribution, I hope, to a serious consideration of the future role and function of local authorities. The Government are firmly committed to developing strong local government, given its vital role in improving life for people in our communities, so that they are proud to live there. That is the goal of our policy. I invite everyone to embrace the opportunity that the Government have provided to support Sir Michael Lyons in the next phase of his work, and to help him and us to ensure that a sustainable and secure funding base supports the changing and challenging role of local government, which is being developed.
The Conservatives have accused the Government of confusion over revaluation, but as the debate has been relatively good natured, let me give the Labour Government credit. They have been consistently in favour of revaluation until a few weeks ago, when they did a giant U-turn, more out of political cowardice than out of ideology. The Conservatives, on the other hand, have held half a dozen diametrically opposed positions over the same period, with no obvious guiding ideology, and as we heard again from their Front-Bench spokesman today, Mr. Pickles, no obvious views about how local government finance should be reformed in future.
Let us consider Labour's record. When the council tax was introduced, countless Labour shadow Ministers argued passionately that a property tax required a revaluation in order to be valid, as we heard again today. Fast-forward to 1998 when the Labour Government were in power and produced a White Paper, "Modern Local Government". Their position then was essentially that revaluations are necessary, but not yet. Four years later, in 2002, the Government decided that the time had come. The Local Government Bill set out a timetable for revaluation in 2005 in Wales and 2007 in England, and every 10 years thereafter.
A few weeks ago, as we know, the Government got extreme cold feet about the political repercussions of revaluation and retreated to the comfort of the old position. As the Minister for Local Government told an audience yesterday at the meeting of SIGOMA—special interest group of municipal authorities—in the House of Commons, the Government postponed revaluation only after analysis demonstrated that there would be about 2.2 million losers as households moved up one or more bands. They predicted that the money that would need to be set aside for appeals could destabilise local government finances altogether. I guess their position remains, "We need revaluations, but not now, please. Not on our watch."
Sadly, Wales has not been quite as lucky. We argued for the Welsh Assembly to have powers to introduce primary legislation so that it could, for example, abolish the unfair council tax system, but the Labour Government would not give such powers to the Welsh Assembly under devolution. Revaluation was therefore foisted on Wales by the Government in the 2003 Local Government Bill. Wales was used as an experiment, just like Scotland for the poll tax. The experiment has gone horribly wrong.
I think there was an inadvertent slip in what the hon. Lady said. The timetable was not in the local government Bill or the Act passed by this House. The timetable for revaluation was chosen by the National Assembly Government, and the Liberal Democrats were in coalition with the Labour party in that Government at the time.
The hon. Gentleman is right that the Welsh Assembly decided to bring forward its decision to revalue, but the decision on revaluation was made in this Chamber. We have argued consistently for the abolition of council tax and its replacement by a local income tax.
In a moment.
A third of households in Wales went up a band, whereas fewer than one in 10 went down—not one in eight, as I heard earlier. One house went up six bands. While Labour has postponed the unpredictable misery of revaluation in England, people in Wales face the prospect of losing the transitional relief next year, so the full impact of revaluation will be felt.
The burden of local tax in Wales has moved from low house price areas to high house price areas, irrespective of income. That is the point. That is what happens when there is an unfair property tax. It is a reason not for cancelling revaluation, but for cancelling the tax itself.
As my hon. Friend said, there are fundamental problems with the council tax that cannot be solved with sticking plaster. May I clarify the figures? In Wales, one in 12 houses went down in the rebanding and one in three went up, but does my hon. Friend agree that that does not necessarily tell the whole story? In constituencies such as mine in central Cardiff, in certain areas nine out of 10 houses went up at least one band and some went up two, three or four bands. That shows that—
Indeed, Madam Deputy Speaker.
Does my hon. Friend agree that the only fair way to redress the balance is to scrap the council tax and introduce local income tax in accordance with the ability to pay?
The hon. Lady has almost answered my question already. In the run-up to the general election, her party's Treasury spokesman admitted that under local income tax, households with two or more wage-earners would pay more. In my constituency a household with two wage-earners would pay £721 more, which was one of the reasons why my majority massively increased over the Liberal Democrats. Can she confirm that she will remain consistent and support local income tax for the indefinite future? We should love her to do so.
I happily confirm that we shall be supporting local income tax for the indefinite future. Just to clarify, it was never said that two-earner households would do worse. Some will. Those who earn considerably more than the average will do worse, and we have never hidden that. This is a progressive taxation system. Some do better; some do worse. That is the point. What about the Conservatives? Could it be that rather than accusing the Government of being confused on the issue, it is the Opposition who are confused?
I will give way in a moment.
If we look back to 1991, we will discover that when council tax was introduced the Conservatives believed, as was stated earlier by the Opposition spokesman, it would never need revaluation because of the banding structure. The then Secretary of State for Scotland, Mr. Ian Lang, said:
"The banding system irons out much of the effect of relative changes in property values within an area which, under the rating system, brought regular pressure for revaluation."—[Hansard, 12 November 1991; Vol. 198, c. 918.]
But in 2003, the hon. Member for Brentwood and Ongar changed his party's mind. Responding to the debate on the Local Government Bill, he said:
"We recognise the need periodically to revalue properties for the purpose of council tax . . . We support the revaluation being made on a regular and predictable basis."—[Hansard, 7 January 2003; Vol. 397, c. 64–65.]
A month later, his colleague Mr. Clifton-Brown, a party spokesman on housing, argued for five-yearly revaluations in Committee on the Bill. Then the Bill moved to another place, and Lord Hanningfield, the Conservative spokesman, proposed no revaluations at all. The reasons he gave were interesting. He said:
"council tax is regressive. Its impact on people on a low income is greater than its impact on people on a high income. I accept that as a fact."
He went on to say:
"The value of property seems . . . to be an unsafe proxy for the ability to pay". —[Hansard, House of Lords,17 July 2003; Vol. 651, c. 982.]
Those are arguments that the Liberal Democrats have been making for nearly 15 years.
I will in a moment.
Lord Hanningfield was defeated and revaluation stayed in the Bill. But the Conservatives did not seem to mind. They had flip-flopped again, and on
"Of course we understand that a property-based tax has to take account of changes in the value of property".—[Hansard, 2 March 2005; Vol. 431, c. 991.]
She then changed her mind again fairly promptly, declaring on
For those who have not been paying attention, that is six separate positions on council tax revaluation: no revaluations, some revaluations, more revaluations, no revaluations, some revaluations, then no revaluations again. At that point, I will give way to the hon. Member for Brentwood and Ongar.
Will the hon. Lady confirm that on three separate occasions the Liberal Democrats voted in favour of revaluation, and on those three separate occasions the Conservative party voted against? It is a matter of record.
There has never been a specific vote on revaluation in the House. We supported the 2003 Local Government Bill because we supported much of what was in it, but there was never a proposal on revaluation. It cannot be claimed that we have not been clear on the council tax point. In every debate on the subject in the House we have said that we do not want a council tax, we want a local income tax. The Conservatives simply cannot accuse us of not being consistent on this point.
Dr. Cable, I think in September, said that if there were two full-time earners in the house, they would pay more council tax. Does the hon. Lady recognise that a sizeable number of two-earner households are young married people, and will she therefore confirm that the Liberal proposals will mean that they will pay more in local income tax?
The hon. Gentleman must have taken a highly selective quote from my hon. Friend Dr. Cable. It depends entirely on how much the two earners are earning and how big is the house in which they live. He must accept that under the council tax system at the moment, many two-earner households, with a combined income of £15,000 or £16,000, are paying over £1,000 in council tax. It would be a very different situation under a local income tax.
The hon. Lady made the astonishing statement that there had been no votes in Parliament when the Liberal Democrats had voted in favour of revaluation. I draw her attention to
The hon. Gentleman will have to demonstrate the detail of that to me outside of the debate. I was not in the House at that stage. My understanding is that the Liberal Democrats voted in favour of the 2003 Bill and there have been no detailed proposals on revaluation. We will discuss that on another occasion. The hon. Gentleman will have to be clear that I cannot address the detail of his concerns now.
The Conservative position has been a flip-flop all over the place, and I find it dizzying to explain. In contrast, the Liberal Democrats have been entirely consistent.
Thank you, Madam Deputy Speaker.
Let us go back to 1998 when the Conservatives were casting around for a replacement to the rates. We suggested one: local income tax. Then there was the poll tax, which we also opposed. We argued for a local income tax. Instead we got the council tax, which we opposed. We argued for a local income tax. A theme is developing here. In fact, we have been arguing for a local income tax for more than 20 years. It has been in every Liberal Democrat manifesto since 1983.
"the noble Lord identifies the problem but the solution is entirely wrong. Let us scrap council tax. That is all I need to say."—[Hansard, House of Lords, 17 July 2003; Vol. 651, c. 977.]
The Conservatives have tried to suggest that we have been inconsistent on revaluation, but we have not. It is simply fairly incidental to us. If there were no council tax, there would be no revaluation. Or to put it another way—revaluation or no revaluation, council tax is a terrible tax that must be scrapped.
It is worth rehearsing the evidence of council tax unfairness once more, jut to make sure that people have the whole point. It is easy for people to forget the reality for people struggling on low incomes or fixed pensions who find it difficult to pay their bills each month. Many people come to my surgeries each week asking which bill they should pay first—their water rates, their rent or their council tax. It is easy to forget what this means to real people's lives.
Council tax penalises the old and the low paid. Remember, it was brought in as a replacement for the poll tax—the most regressive system imaginable. It was only in contrast to the poll tax that council tax appeared to have an element of fairness and was accepted by the British people. Nearly 15 years on, it has become painfully apparent that council tax is not a fair tax. That is why there are protests, demonstrations and petitions up and down the country and in this place. That is why pensioners feel the need to go to prison in protest rather than pay their bill. Council tax is Britain's most unfair tax. The Conservatives invented it, so it is hardly surprising that they still think it is good enough. But it is a tax that Labour should be ashamed of. The poorest 10 per cent. of pensioners pay nearly 10 per cent. of their income in council tax, and that is after council tax benefit. Up to 1.8 million pensioners do not claim the benefit that they are entitled to, often because the forms are so baffling and humiliating.
The hon. Lady said something that I find impossible to let pass. She said that the poorest pensioners would pay 10 per cent. of their income on council tax, and that is after council tax benefit. She must know that the poorest pensioners receive 100 per cent. rebate for council tax. How then can they, after council tax benefit, be paying 10 per cent. of their income?
The poorest among those who pay council tax and who claim the benefit still pay a larger proportion of their income than the richest in the population, so the calculation is perfectly acceptable.
As I have said, a couple who are living on as little as £16,000 a year—they might work full-time on the minimum wage—could still find themselves paying more than £1,000 a year in council tax. How can that be fair? How can a Labour party member defend that situation? The poorest 20 per cent. Spend four times as much of their income on council tax as the richest 20 per cent. A pensioner couple on a modest pension could find themselves paying as much council tax as an investment banker who lives next door. Earlier this year, the "Gloucester Citizen" newspaper uncovered the case of a retired farmer who makes ends meet by running a bed and breakfast, and who pays more council tax than his near neighbour, Prince Charles. It is staggering that a Labour Government can stand up in this House year after year and defend the Tory tax.
Reading the debates from 1991–92, when the council tax was introduced, has been an education. The Labour party used to make a convincing case that it cared about the poor, working people struggling on low incomes and pensioners. What did Labour Members say when the council tax was introduced? Mr. Blunkett called it a "pig in a poke" tax—I am not sure what that means, but it does not sound very nice.
No; I think that the House can probably do without that.
"Why are the Government . . . skewing their new proposals so that the richest are protected from paying their fair share? Do not they realise that every pound that the rich do not pay will be added to someone else's bill—the bills of precisely the same people who were so hard hit by the poll tax?"— [Hansard, 23 April 1991; Vol. 189, c. 904.]
Returning to the issue of fairness, will the hon. Lady explain how foreign national millionaires living in this country, who currently pay council tax towards the local services that they receive, will pay anything under her proposal?
I am happy to do so—such people would be taxed on business rates under a second home system. [Interruption.] We have made the proposal time and again. If the hon. Gentleman wants more detail, he can go to our website, where we published the detail in February this year.
"to champion the cause of the forgotten people", decided that council tax did not need reforming after all.
Labour's record on local government is not, as the Conservatives have claimed, one of confusion—it is one of broken promises. What about the promise to re-localise business rates, giving councils financial freedom and an incentive to foster business in their area? Eight years in, and all Labour has managed is the catchily named local authority business growth incentive scheme. Thanks to the delay of the Lyons review, any hope of proper reform has been postponed into the next Parliament.
I do not think that the spin about extending the Lyons review and tying it in with yet more reforms and proposals will amount to anything very much, because the truth is that local government reform has been kicked into the long grass. That refusal to grasp the nettle of financial reform for local authorities is proof both that new Labour has lost its supposed commitment to social justice—it does not care about the families who struggle week after week to pay their council tax bills—and that its new localism is nothing more than a gimmick.
Freedom and autonomy for councils is only possible with a wholly reformed financial regime. The Government's freedoms and flexibilities agenda is nothing without the one freedom that must precede them all—the freedom for councils to raise and spend their own money. However, the Government see fit to retain a system that cripples councils by making them dependent on central Government for most of the money that they spend, and councils too often have no choice over how much they raise in council tax because of the crude capping system, which Margaret Thatcher introduced, but which this Labour Government operate with great zeal—earlier this year, we saw that zeal in the House. That means that all the Government's rhetoric about devolution is just hot air.
The Lyons review is supposed to consider the functions of local government, with the suggestion that more powers and responsibilities might be devolved. Last week, however, we discussed new structures for police services, fire services and health services. By the time that the Lyons review reports, every service that could be placed under local authority control will have been restructured into a new set of quangos. The only thing that will be left for Lyons to do will be to nationalise the education system and tear the very heart out of local government.
Labour spent 18 years in opposition arguing that local government should be given more power and that local democracy is at the heart of improving public services. All we have now, however, is the freedoms and flexibilities agenda, which everybody knows is about centralising praise and devolving blame.
The motion highlights the Conservative party's desire to curtail the growth of regional government. The hon. Lady has not mentioned regional government, the Liberal Democrats' enthusiasm for regional government or the impact of regional government on council tax bills in the future.
I will discuss that point at the end of my speech, so the hon. Gentleman must listen carefully.
What would we do differently? We would localise business rates to give councils real financial freedom; we would give councils control—not some opaque right to be consulted or right to co-ordinate a strategic partnership between key stakeholders—over the services in their area; and we would end Whitehall micro-management, targets, capping and inspections and the centralisation of decision making. At the heart of our local government reforms would be the tax change that we have been talking about for 20 years—local income tax.
Does the wonderful new world that the hon. Lady is setting out include the equalisation of resources against the ability to raise money? Do her plans include the idea that money comes from central Government to local government in order, among other things, to equalise those authorities that have higher resources with those that have lower resources?
Absolutely. Any system of local taxation must include some form of equalisation, although we advocate a simpler system than that used at the moment.
Local income tax would be fair, progressive and simple. It would also be cheap to administer, saving more than £300 million a year in administration costs, so it would be a lot better for the average family. An average family on an average household income of £23,000 a year that pays an average council tax bill would pay £450 less under our proposal. Six million pensioners would pay nothing at all, because their incomes are so low that they do not pay income tax. Local income tax would also encourage people back into work. At the moment, people returning to work lose about 20p of council tax benefit for every pound that they earn. Under local income tax, they would pay less than 4p.
No; I want to finish.
Crucially, local income tax would allow us to shift the balance from national to local taxation, solving the balance of funding crisis and giving councils the freedom to raise and spend their own money.
In conclusion, we will vote with the Conservatives today. [Interruption.] Conservative Members are so disappointed by that. We, too, regret the Labour Government's decision to delay revaluation, rather than to cancel it altogether, and we want them to scrap the unfair council tax. The situation in Wales is completely unfair and untenable, and Wales, too, should have a local income tax. We agree with the Conservatives that the Government's vision of increasingly powerful unelected, unaccountable regional government should be curtailed. Unlike the Conservatives, however, we have a clearly laid out policy on local government financial reform, and it is time that the Labour Government had a policy to match it.
I was delighted to hear the name of Chairman Mao mentioned this afternoon. The Conservative policy spelled out by Mr. Pickles could be summed up aptly by Chairman Mao's dictum, "Let a hundred flowers bloom", which, as hon. Members will know, was his campaign slogan in 1956, with unfortunate results.
Sarah Teather set out the Liberal Democrat policy, which reminded me of Chairman Mao's campaign shortly afterwards—the great leap forward. She will remember the phrase that he used then was, "A smelter in every back yard", which was to solve all the problems of Chinese industry by itself. We have been offered two alternative visions of local government which are not visions, are not alternative and do not address the real issues.
I am sorry that the hon. Member for Brentwood and Ongar did not cash in his promise to say something about what a Conservative Government would do about council tax. After all, the motion says that the Conservatives would cancel council tax revaluation in England. If we want to find out more about what the Conservatives' policy might be, we should perhaps look at their manifesto for the last local government elections, when they did indeed say that they would cancel council tax revaluation in England. They also said that they would not introduce any new or higher bandings; that they would block any taxes other than the council tax coming into the local government arena, so they would have only that as a method of raising money for local government; and that they would, despite all that, provide above-inflation funding and cut waste, red tape and bureaucracy,
"enabling councils to keep council tax down."
That implies, although the hon. Member for Brentwood and Ongar did not say so, that they would keep the council tax despite making no changes to it whatsoever. In the next paragraph of their manifesto, they stated:
"We will deliver £2.3 billion of savings from central government and £4.4 billion of savings that local councils can make themselves to reduce their costs and ease the burden of council tax."
However, they did not say that, in addition to the severe cuts in local government spending that that would represent, a good proportion of the savings from central Government would be the grant that went to local government in the first place, enabling local authorities to keep council tax down by equalising the cost of council tax. In other words, council tax would have gone straight up had the Conservatives got into power. Not only that, it would have been retained with no possible way of ameliorating the problems that arose when it was first introduced in 1993.
It was clear during the passage of the legislation that brought in the council tax that, all things considered, the principle of some form of property tax is not a bad method of raising funds for local government expenditure, because properties cannot move and the tax is easy to collect.
The hon. Gentleman says that the council tax is a property tax, and in one sense that is so. However, millions of people—council tenants and tenants of housing associations—are paying the tax on the value of somebody else's property. Does he agree that there is sometimes confusion between a property-based tax and a wealth tax, and that the council tax is not the latter?
It is true that council tax as a tax on property does not bear an exact relationship to wealth, but neither does a local income tax, given the way in which it might be collected. On the other hand, a local property tax can define what are the properties in a particular area and collect the funds from them in an easy and straightforward way. The amount of evasion under the poll tax compared with the council tax differs by an enormous order of magnitude.
If we agree in principle that a property tax might be a way forward in collecting taxes for local government, it is inevitable that we have to revalue its basis from time to time. One cannot, as the Conservatives apparently do, support a property tax without accepting that it must reflect the way in which it is likely to be collected over a period of time. The idea that using bands means that one escapes from revaluation was one of the less well advised of those that were floated when council tax was first introduced.
What does one do about it? Despite what the Conservatives say, several things need to be recognised about council tax. It builds inflation into council tax demands by settling the amount of money that local government will have from central Government grant before the decision is taken on raising council tax locally, thereby introducing a gearing effect into local government spending in a way that is not structurally necessary. There is potentially a problem of inflation because revaluation means that people jump between bands, although one can get round that by attempting to organise a revenue-neutral rebanding. Perhaps a council tax that is not based on bands but on points is a more sensible way to proceed.
Business rates are capped at the rate of inflation, whereas council tax is not. Over a period of time, that draws the yield from business rates away from the yield from council tax and places a greater burden on domestic council taxpayers.
It is essential that, if a property tax is to be retained, the breadth of what needs to be done is clearly discussed and understood. Although I have my concerns about the difference between a deferral of revaluation and one that does not take place at all, we must get the detail right in the round, dealing with entitlement to council tax benefits alongside the issue of council tax as such. That is a constructive and responsible way forward for the council tax.
I am afraid that what the Opposition have offered us is a complete abdication of any interest or responsibility in the reality of how local authorities are funded. To use another far eastern metaphor, they are like members of the Japanese Socialist party in the 1950s, '60s and '70s, who were so convinced that the Japanese Liberal Democrats were going to win that they gave up even having policy conferences because they knew that their policies were never going to be implemented.
Thank you, Madam Deputy Speaker, for calling me to speak in the debate, which is of great interest to my constituents. Wellingborough has experienced the largest increase—almost 400 per cent.—in council tax since it was introduced, whereas in the same period inflation increased by only a fraction of that. Despite that figure of 400 per cent., the Government want to increase the council tax even more through revaluation.
Incredibly, the Government have wasted £60 million on considering council tax revaluation and, after spending that money, have decided to postpone its introduction. That is typical of them. Their attitude is, "Forget spending money on core services like the fire service, the police or nurses. Let's spend it on bureaucrats and consultants." It would not be so bad if they had decided to scrap the revaluation, but they have postponed, not scrapped it. Revaluation will hit the elderly and the vulnerable hardest. How much more money will be wasted on consultants and advisers before proposals are presented to the House? Pensioners are suffering most through the excessive rises in council tax and pensioners would suffer most from revaluation.
In 2003, Mr. Martin Sterrow, a local pensioner, approached me. He, like many other pensioners in Wellingborough, was fed up with having to fork out year after year for huge increases in council tax while the rise in his state pension was a pittance in comparison. Mr. Sterrow was able to show me that the increase in his council tax was more than that in his state pension.
Some pensioners found it almost impossible to keep up their council tax payments and others were prepared to go to prison rather than pay it. Mr. Sterrow had never previously been involved in politics but felt so strongly about the issue that he wanted to do all he could to highlight the huge problem that Wellingborough pensioners faced in the amount of council tax that they had to pay.
For the past four years, I have run the Listening to Wellingborough and Rushden campaign, which actively seeks the views of local people, listens to their concerns and campaigns for change on their behalf. Before Mr. Sterrow and a group of local pensioners came to see me, I was aware of the big rises in council tax but I did not quite appreciate the extent of the detrimental effect on the lives of the elderly in Wellingborough. They explained to me that they were on fixed incomes and could not therefore keep up with the year-on-year increases in council tax while receiving only a small rise in their state pensions.
The quality of life of pensioners in Wellingborough was declining year after year. They were furious that the Labour Government had not restored the link between earnings and pensions.
I am grateful to my hon. Friend for explaining how pensioners are hit the hardest by council tax rises. Will he join me in commending the many pensioners who attended the lobby of the National Pensioners Convention, which raised similar concerns? Does he agree that it is a great shame that we now have a new definition of poverty—council tax poverty—and that 1 million pensioners are in that category as a result of the Government's delays and dreadful treatment of pensioners and their council tax?
I agree with my hon. Friend. Although I was talking about Wellingborough, I appreciate that we are considering a country-wide problem. I urge the Minister to give a higher priority to restoring the link between earnings and pensions instead of worrying about council tax revaluation.
Mr. Sterrow organised a petition and he and other pensioners went from door to door, collecting more than 200 signatures. The petition asked the Government to correct the huge discrepancy between council tax increases and state pension rises. Leaflets were delivered and people were asked their opinion on the doorstep—all by those who had never done anything like it previously. That shows the depth of feeling in my constituency about the matter.
The Wellingborough pensioners and the listening campaign held two well-attended public meetings on the issue. The second public meeting, which local councillor Malcolm Walters organised, was attended by my hon. Friend Mr. Yeo, who is a member of the shadow Cabinet, the leader of Wellingborough council, my hon. Friend Mr. Binley, who was then the Cabinet member for finance at the county council and hundreds of local residents.
We presented the petition to my hon. Friend the Member for South Suffolk and asked him to raise the matter with the shadow Cabinet. He did that and I know that the leader of the Conservative party and the shadow Cabinet took our views into account. They adopted the policy of halving council tax for pensioners. That was the 50 per cent. discount that we mentioned in the general election campaign. I urge the Minister to adopt that policy to alleviate the current problems with council tax that pensioners face.
As part of my listening campaign, I regularly send out surveys to the people of Wellingborough and Rushden, asking what issues are most important to them. Council tax consistently appears as one of the biggest problems. After the return of one of the surveys, I had to ask my office to recount the answers because I could not believe the enormous response that we had received from people who said that council tax was their No. 1 concern. I detected through my listening campaign that council tax revaluation was a ticking time bomb, long before it became the national issue that it is today.
In my constituency, pensioners can barely keep up with their current council tax payments.
Does the hon. Gentleman accept that the policy of offering discounts to pensioners is regressive because the better-off pensioners, who pay the whole of their council tax, would get the whole discount, whereas poorer pensioners, who are on council tax benefit, would not get the whole discount. Such a policy would give more of the discount to better-off pensioners.
I am interested in the spin that the hon. Gentleman puts on that. It is clear to me that if we asked the pensioners of Wellingborough whether they wanted 50 per cent. off their council tax bills, they would be happy. The Government have placed many obstacles in the way of pensioners claiming relief—many pensioners who should get relief do not receive it. Labour Members also acknowledge that the forms are complicated and the people who deserve the help do not get it.
Revaluation would mean that our council tax bills would hit the roof. Revaluation of properties in England would give local authorities the gift of increasing their base tax and blaming the Government for the resultant increases in council tax. If the Government are trying to claim that council tax revaluation would be broadly neutral and that there would be both winners and losers, they are living in cloud cuckoo land. All council tax payers would lose out from revaluation because it would be an opportunity to increase a stealth tax by the back door.
If hon. Members do not believe me, let us consider what happened in Wales, where only 8 per cent. went down a band. However, the greater problem is that, for the change to be neutral, the rate of council tax would have to be reduced because so many properties would go up a band. There would therefore be an automatic increase in tax revenues. Does any hon. Member believe that that would happen?
We need a Government who reduce council tax and introduce proposals to change the way in which local councils are funded centrally. Talking is not good enough. The Government make the excuse that they will not introduce revaluation yet, because it needs to be considered as part of a wider review of how local authorities are funded, but they have been reviewing since 1998. Is not it time for action or are another four years of talking shops and wasted millions in store for the people of England?
Local councillors often tell me that the Government require local authorities to take on more and more responsibility and more portfolios but without the necessary money from the centre to fund it. Wellingborough council has been consistently underfunded by any objective formula. Perhaps the Government should focus their efforts on how to fund local authorities fairly so that pensioners throughout the country, especially in Wellingborough, do not suffer year after year, as they currently do.
Council tax is a huge, genuine issue for the most vulnerable in our society. It affects people on low incomes and fixed incomes. It causes massive hardship to those in our communities who can least afford it. Council tax is a regressive tax and hon. Members of all parties acknowledge that and are crying out for the Government to tackle the issue quickly. Council tax revaluation is not the way forward.
I have a few reservations about the Government's proposals, and I shall come to those in a moment. I want to begin by echoing the point raised by my hon. Friend Dr. Whitehead, that if we are in favour of a property tax—I know that the Liberal Democrats are not, but the Conservatives apparently are—it is illogical never to revalue a property to bring it into line with the current situation. It does not matter whether the system is based on bands or on the actual value of the property; at some point, a revaluation is needed.
Are the Conservatives seriously saying that, while they support a council tax or similar property tax, they would never revalue, even after 20, 30 or 40 years? The longer we go on without revaluation, the more irrelevant the tax becomes and the less people are able to see any reality in it. And all the time, we have the nonsense of artificially revaluing new properties. That is an unsustainable position. The Conservatives try to pretend that the Government have changed their position for reasons of political advantage, but I suspect that the Conservatives' position is very much one of political advantage, in that they do not want to be associated with any revaluations whatever.
The hon. Gentleman should read his party's motion. Members on his own Front Bench have drawn the distinction between deferral and cancellation, and the Government's position is clearly one of deferral.
As I have said, I have some reservations about the Government's position. It has already been established that 10 years is about the right period between revaluations. The timetable that had been agreed would have taken it to 15 years, and now we are talking about perhaps 20 years. My concern is that the longer we go on, the greater the scope for differences between the changes in the value of different properties. I can certainly see that happening in my constituency. I also have reservations about carrying out a revaluation at the same time as introducing other potentially significant changes in local government taxation, as that could lead to confusion among the public as to which change had affected which element of their bill. That could be very difficult to disentangle.
However, the Government are right to lay down that we should establish the precise functions of local government—I welcome the widening of Sir Michael Lyons's remit in that regard—and then agree on an appropriate financial system to fit in with those functions. Local authorities have an important central role to play as the strategic authority for their area, covering a wide range of services. May I suggest that my hon. Friend the Minister has a friendly chat with his colleagues in other Departments to ensure that they are on board with this agenda as well? With regard to the regional government proposals, when it became clear that the Office of the Deputy Prime Minister was in the business of devolving and decentralising functions, it was not equally clear that Departments such as the Department for Transport and the Department for Education and Skills were on the same wavelength.
I want to cite two examples from my constituency. I am anxious to encourage the local college—it now seems anxious to respond—to build a new post-16 vocational centre. However, every secondary school now has the right to develop its own post-16 arrangements. It is difficult to see how we can encourage one educational institution to invest, while there is a risk that another will do precisely the same thing with no overall planning at local authority level, effectively wasting resources and undermining the collective, coherent provision of services.
Secondly, over the past 10 years, South Yorkshire has lost 30 per cent. of its bus passengers. Local government has no strategic ability to plan and deliver local public transport. I hope that those two issues will be seriously considered by the Lyons review, which should not pertain only to those issues that are directly in the remit of the ODPM, but must also consider the strategic responsibilities of local government and its ability not necessarily to deliver but to co-ordinate the delivery of services on the ground in a constructive and proper manner.
The hon. Gentleman seems to be arguing that revaluation is important. If the revaluation was to have been revenue neutral, why is he suggesting that it should be deferred?
I was expressing my reservations about the deferral and my concern that the revaluation might get confused with lots of other issues, rather than being helpful. The longer we go on, the more difficult it will be to deal with the revaluation because of the potential for ever greater differences between the changes in value of different properties.
I want to return to the point made by the Lib Dems. I do not accept their argument that the only fair form of tax is income tax. If they are arguing that a tax has to be related to people's income, will they at some point also suggest that VAT or excise duty should be replaced by income tax? The reality is that we tax a whole range of different things, and that those taxes collectively form the revenues of government. I believe that it is perfectly reasonable to have some tax on property, as most countries do. I accept that for a minority of people who rent a property, that property does not represent a store of wealth for them. However, most of those rented properties are in band A. Many people do have a store of wealth in their property, and it is not unreasonable to tax someone's major store of wealth. Council tax is also easy and cheap to collect, and difficult to evade. Those are important elements of a taxation system.
Perhaps I have misunderstood what the hon. Gentleman said. You said that, because the value of houses was going up, it was okay to tax them. But some of the people living in those houses are pensioners on fixed incomes who will be penalised by your proposals.
I still argue that those people have a store of wealth in their house. They have a property, and it is reasonable to tax it. I do not think that the hon. Gentleman was arguing for the complete abolition of property tax. I am arguing that the principle of a property tax is fair. The key question is how it is implemented.
I would argue strongly that we have to find a way for local government to become more accountable and responsible for raising its own revenue. The key to that will be to bring the business rate back into the orbit of local authority responsibility. It is wrong that increases in business rates have been restricted to the annual inflation rate. That has inevitably resulted in a greater percentage of the money for local services having to be raised from council tax payers than from business rate payers. Business rates should be brought back, and if there has to be a restriction—as there was on the domestic rates and business rates before the poll tax was introduced—the two should be linked. It is possible to link increases in council tax with increases in business rates so that local authorities do not put the entire burden on business rate payers. That would also mean that any increases in revenue that were needed locally would be spread across a wider base, which would reduce the problem of gearing. That would be one significant reform that could come out of this process.
I know that there are differences between the incomes of people in different groups, but broadly speaking, council tax is not regressive; it is usually neutral. However, it is regressive if we compare the amount that people pay with the value of their property. If we compare the £40,000 value of a property at the top of band A with the £320,000 value of a property at the bottom of band H, the difference is about eightfold. Yet the council tax payable on the band H property is only three times that paid on the band A property, so the burden is greater on people at the bottom end of the scale. When we come to examine council tax seriously, we need to look at how the burden is spread across the bands, and probably at the bands themselves. Perhaps we shall need another band A, and perhaps a splitting of the top band. Those are all possible ways in which we can more fairly relate what people pay to the actual value of their property.
We should also consider the proposal that pensioners who do not want to give up their house, but who are struggling because they are on a fixed income—I take the point made by Mr. Bone—should be able to defer payment of their council tax until they sell their property. I have no problem with that at all. The proposal has been referred to as a death tax, but that is frankly silly. There would be no compulsion on people to defer payment, and it would have to be done in a way that did not impose a penalty on other council tax payers. But that is a possibility, and it could deal with the problem of pensioners being forced to sell their home.
I also accept some of the criticisms of council tax benefit. The reality is that council tax benefit is taken up fairly well by people in social rented housing. Only about 50 per cent. of owner-occupiers who are eligible take it up, however. That is a real challenge. Certainly, we must do more in terms of publicity, but perhaps we should consider the whole issue of council tax benefit and its structure to see whether we can find a better way to encourage people to take it up. Certainly, making the tax more progressive would be helpful and would deal with a particular group of people who are currently hard-hit by not taking up their benefits.
The Local Government Information Unit has produced an interesting pamphlet, which I hope that Ministers will read. It identifies another problem, which relates to the point made by Liberal Democrats that some people will be better off with local income tax. The reason that some working families on relatively low incomes are better off under a local income tax is that people start paying income tax at a higher earning level than that at which they start paying council tax, which means that they start losing council tax benefit. If we could bring into line the points at which people pay income tax and council tax, we could deal with another element of unfairness in the current council tax system in terms of how it impacts on low earners who are struggling to make their way and to get a better income than if they simply relied on benefits.
I hope that Sir Michael Lyons considers seriously a number of proposals, although I have some reservations about the deferral of the revaluation process. I support the widening of Sir Michael's remit, however, and I hope that we retain a property tax but with significant reforms to make it fairer still.
In May 1997 I was elected to Northamptonshire county council, and exactly one year later was handed the shadow finance portfolio and tasked with preparing the Conservative group for county government. On that self-same day, our current Prime Minister was given the immediate task of running our country. There is a bit of a difference between those two tasks, but I was allowed to experience at first hand the impact that the newly elected Government would have on the quality of local government in my county and on the welfare of its citizens. I was especially well placed to judge that impact from a financial perspective.
I well remember some of the promises concerning local government that were made in the Labour party's manifesto prior to that election. I want to remind the House of a few of them, not least because the Minister referred to them.
First, the manifesto promised that local government would be less constrained by central Government. How I wish that that promise had been kept. Sadly, however, through ring-fencing, matched funding and the iniquitous pressures exerted by quangos and the comprehensive performance assessment, it was not.
Secondly, the manifesto promised that there were sound democratic reasons why, in principle, the business rate should be set locally. I am rather pleased that the Government have not carried out that pledge, although I note that they are still talking of doing so after eight long years. It is another example, however, of not following through on a promise.
Thirdly, the manifesto stated that Labour was committed to a fair distribution of Government grants. The Minister for Local Government should tell that to the people of Northampton borough—I notice that he has the information about Northamptonshire county council, and I look forward to hearing it from him—who, three years ago, received a 32.9 per cent. increase when the council was under Labour control, and a 5.8 per cent. increase in the following year when still under Labour control, while last year the grant dropped to just 0.9 per cent. after Labour had lost control. That is hardly an example of fair distribution, bearing in mind the impact of year-on-year revenue expenditure on services.
Finally, the manifesto stated that councils should not be forced to put their services out to tender but will be required to obtain best value. Almost everybody in local government, however, will have horror stories to tell of the best value regime—as I am sure you will have heard, Madam Deputy Speaker—of the money it wasted, and the time and effort that it cost to so little avail. In truth, we hardly hear of it now because of that waste, but it was a problem.
What one word might we choose to sum up Labour's performance with regard to local government, and especially local government finances? In my part of the world, that word would be "uncertainty", and I get the impression that that word is used quite a lot throughout the country. Undoubtedly, there is sizeable uncertainty in local government, and this Government need to recognise that and the impact that it creates. Any businessman will tell us that it is one of the most damaging of all conditions to deal with.
How has this uncertainty arisen? Many in the House will know of the Government's initially stated desire to review local government funding, which they pursued with the balance of funding review starting in January 2003. The need for a thoroughgoing review of local government finance and the necessity of creating more equitable local collection vehicles is well rehearsed. Recent events have especially drawn our attention to the seeming unfairness of the current system for certain sections of our community—we have already mentioned our state pensioners, many of whom have seen up to 40 per cent. of their basic pension increases clawed back by council tax increases over the past eight years. The decision to supersede that review with the Lyons review, which was programmed to report at the end of 2005 but was then extended further by widening the terms of reference to include the functions of local government and its future role, suggested a wish to delay and prevaricate rather than to act and progress.
Does my hon. Friend agree that the Government had a working model in Wales that they could have examined to extrapolate how the revaluation model would work, and that it would have been quite simple to have brought that forward? I cannot see why they needed to delay, other than that it seemed expedient with an election on the way.
May I point out to the House that the decision to postpone the revaluation was taken after the election? If the reason had been the naked opportunism that we are accused of, and that we accuse the Opposition of, we would not have done it at that time, would we?
I am sure that we are all grateful to the Minister for that fine explanation. My thoughts remain as before, however.
As well as the uncertainty in local government, there is a growing belief that this Government have lost their appetite for reform. There is no doubt that that is seen in the Government's actions in relation to the review of property values. The Government have prevaricated, and while they have prevaricated, the revenue support grant has continued to fall as a percentage of local government income, creating even more hardship, uncertainly and doubt.
Since Labour came to power, the average council tax bill has increased by 76 per cent., and by even more in my county, because revenue support grant has fallen and public sector inflation has increased way beyond inflation in the economy generally. Public sector inflation averaged 5.5 per cent. in the second quarter of 2005 against an overall inflation rate of 2.7 per cent. It therefore increased by more than twice the rate of general inflation, and that was in a very benign quarter. Yet the Government have the temerity to say that successive settlements have been above the inflation rate, having increased by 33 per cent. in real terms.
The Minister will be taking up my time. Will he be kind enough to wait, as he will have another chance to speak?
Of course the Government can make such a statement by setting the settlement against overall inflation of 2.7 per cent., but that is a confidence trick, which looks foolish when measured against public sector inflation well in excess of 45 per cent. during the eight years that this Government have been in power. That is the inflation figure that local government must deal with, and it is in many respects created by the Government themselves. I wish that the Government would show some humility in that regard.
When the Government came to office, 20.5 per cent. of local government revenue spending was financed by council tax. That has now risen to 25.3 per cent., which tells the real story much more effectively. No wonder local government is uncertain when national Government give such false and misleading information.
I could go on to speak about the burdens placed on local government. I could go on to describe how they affect core services, and how we are constantly top-slicing. There is no time for me to do that, however. Instead, let me return to the issue of uncertainty: a damaging cancer at the heart of local government, which is undermining confidence and undermining belief in the Government's wish to see successful local government.
Local government believes that more importance is being ascribed to quangos, unelected bodies and officer-led partnerships than to local government itself. The Minister smiles. I believe in local democracy and I hope that he does as well, but his actions suggest that that is not the case. Certainly, the Government's actions suggest that it is not the case.
Let me ask again what the Government can do to eradicate the uncertainty and restore the confidence that I believe is vital to our local democracy and our local democratic structures. They should start by reviewing local tax-collecting vehicles quickly, although the setback to the Lyons review neither helps the process nor inspires us with confidence. They should either get on with the revaluation or scrap it altogether. I understand some of the arguments in favour of regular revaluations, and the fact that the next revaluation may be delayed until the next Parliament is extremely worrying. I understand that one of the Minister's colleagues made that point as well.
The Government can help us by providing a fair revenue support grant that recognises the true cost of public sector inflation. We do not want spurious arguments that tell us that we have more money than we have when we are forced to accept public sector inflation that is well above the level of general inflation. The Government can also help us by doing what they say they will do: all too often they have suggested that they will do something, and then abandoned the plans that they have outlined to local government. Finally, they can restore to local government the power and freedom to get on with the job that it was established to do.
There is nothing more efficient or effective within the confines of national Government than in local government. The only difference is that national Government think they know best, while local government know that they do not. It is time to trust local democracy. I just wonder whether the Government have the courage to face up to that challenge.
I hope that I will be forgiven if I do not take up the remarks of Mr. Binley. Not only did they fail to address the subject of the debate, revaluation, but they demonstrated a rather depressing failure to understand the difference between rhetoric and reality. I want to deal directly with the important issue of revaluation, and I begin by saying that I have little or no sympathy with the stance taken by either Opposition party today.
The Conservatives were consistent only in their opportunistic criticism of the Government, which revealed a vacuum in place of any positive policy of their own—despite the characteristically good-humoured presentation from Mr. Pickles, whom I am always delighted to see here. As was pointed out by my hon. Friends the Members for Southampton, Test (Dr. Whitehead) and for Sheffield, Attercliffe (Mr. Betts), it is nonsensical to support a council tax system based on property values without making any provision for revaluation from time to time to reflect changes in values.
The Liberal Democrats could lay claim to consistency, but only in terms of economic illiteracy. We heard two extraordinary propositions today. Sarah Teather suggested that the poorest pensioners were liable to spend 10 per cent. of their incomes after council tax benefit on council tax, although the poorest pensioners are entitled to 100 per cent. council tax benefit, and thus spend zero per cent. of their incomes on the tax.
No, I will not.
The hon. Member for Brent, East has already had a good opportunity and made a mess of it. She should hear a few facts. There is a problem with take-up of council tax benefit. Had she put the case for those who do not receive it, I would have had some sympathy with her, but she advanced the extraordinary proposition that the circumstances she described applied to the poorest pensioners after their receipt of benefit. I am sorry, but that is economically illiterate.
The second example of economic illiteracy was the response to the challenge issued by my hon. Friend the Member for Sheffield, Attercliffe, who asked how a PAYE-based system of local income tax would deal with those outside the PAYE system. The hon. Member for Brent, East said that they would be subject to a different form of taxation, based to some extent on business rates. That would of course mean every property in the country having to be valued, yet the hon. Lady persisted in her claim that ending property valuations would save £300 million. That is typical of the Liberal Democrats. They do not do their sums, or their sums do not add up, and no one believes that a local income tax would generate the benefits that they claim for it.
Having said that, I should add that I have serious reservations about the Government's wish to postpone revaluation. Revaluation is an essential component of any system based on property values, as has been pointed out by my hon. Friends this afternoon and also by the Royal Institution of Chartered Surveyors in its excellent briefing paper.
The year 1991, the current basis for valuation, is now 14 years behind us, and it is increasingly unreal to base valuations on 1991 values. In my constituency, areas that were derelict industrial wastelands in 1991—
I am in the middle of a rather important point. If the hon. Gentleman listens, he may learn something.
As I was saying, an area in my constituency that was an industrial wasteland with no properties is being regenerated very effectively as a result of Government policies, and there are many new properties there. To every new home that is being built, however, a notional 1991 value must be applied for council tax purposes. I think that most people would accept that that is unrealistic.
We have talked about property taxes. Is the right hon. Gentleman aware of any calculation of the extra revenue generated from stamp duty relating to the increased house prices, as against the revenue generated in council tax take without revaluation? Surely the one offsets the other in some respects.
If the hon. Gentleman bears with me, he will understand that although stamp duty is an interesting subject for a debate in which we could engage on another occasion, it is not relevant to this debate.
I return to a point on which I challenged the hon. Member for Brentwood and Ongar. When a property changes hands, it is revalued. People who live in a property whose value has risen or fallen significantly in relation to the average since 1991 will experience the consequences when they sell it, but someone living next door whose house has not been sold will not be affected in the same way. There will be increasing anomalies and inconsistencies between properties, which is another sound reason why we cannot have a valuation system without periodic revaluations. The anomalies become worse. The longer the situation continues, the more problematic it becomes, and the more difficult changing it becomes. That is why it is essential that there be arrangements for revaluation.
The Government's case for postponement of revaluation is related to the Lyons review, and I welcome the wider remit for that inquiry. My hon. Friend the Minister for Local Government rightly highlighted the benefit of a wider look at this issue, but I fail to see why revaluation should be postponed. If council tax is to continue as an important and not necessarily the only element in a framework for local government finance, it will not provide a fair basis for funding unless it is subject to revaluation.
Sir Michael has made clear his view that a one-year postponement would have been acceptable—I understand, however, that he did not recommend it—but he has also clearly expressed reservations about the indefinite postponement proposed by the Government. Although such a postponement might be acceptable, pending the completion of the Lyons inquiry and the Government's assessment of it, I see no basis whatever for removing the obligation in the legislation for a review thereafter, within a minimum of 10 years. Regular, periodic reviews are essential in order to keep council tax valuations up to date, and to avoid excessive turbulence if the revaluation is delayed unreasonably—a point made forcefully by the RICS in its submission.
I am intrigued by the right hon. Gentleman's support for revaluation. He referred to a report on the issue, and I wonder whether he has read the report from the New Policy Institute on the effect of revaluation of London properties. They will be by far the worst affected—at least, that is, until the recent falls in property prices. I have in my hand a photograph of a property reckoned to be one of the worst affected. The right hon. Gentleman will know it well—a band D council flat in Sulivan Court, in Fulham—because he used to be the Member of Parliament responsible for it. It will suffer the largest increase of any property in the country under the revaluation that he supports.
That rather rambling and incoherent contribution indicates the hon. Gentleman's lack of understanding. The New Policy Institute gave detailed evidence to the balance of funding review that I chaired, making it clear that as part of the revaluation exercise it is important that changes be made, such as the introduction of new bands or regional banding perhaps, in order to avoid precisely the anomalies and injustices that the hon. Gentleman has conjured up. I am afraid that he is seizing opportunistically on a piece of evidence without understanding the implications of the NPI's position. That is rather characteristic of his party.
There has been much focus in this debate—the hon. Member for Brentwood and Ongar gave an example—on the scope for losses resulting from revaluation. —[Interruption.] Members should bear with me, because there is an important lesson to be learned. Wales was much quoted, and in Wales 33 per cent. of council tax payers were losers and only 8 per cent. were gainers. That reflected the decision taken under the devolved framework—
No. I have given way already and I am not doing so again. We are time limited, as the hon. Gentleman will understand.
The decision taken in Wales was that there should be an increase in yield. It is perfectly proper for such a decision to be taken within a devolved framework, but it is not a decision to be taken in England. Indeed, the Government have been absolutely consistent in saying that there should be no increase in yield in England as a result of revaluation—a point also endorsed by the RICS.
So in England, it is likely not that there would be a large number of losers and very few gainers, but that there would be broad parity between losers and gainers as a result of a revaluation, with no increase in yield. That of course means—I ask Opposition Members to listen to this point—that many people will continue to pay more council tax than they should post-2007, because they will remain in bands that are higher than they should be in terms of current values. If we are talking about justice and fairness, it is important not to be opportunistic in picking out single examples; rather, we must look seriously at the pattern across the country of current liabilities for council tax, and consider how that would be changed by any particular form of revaluation. Value judgments are made in the course of a revaluation, and how it is done is clearly important to the outcome.
So I put it to my hon. Friend the Minister for Local Government that the House and I would find it helpful to have the benefit of the evidence that Ministers examined concerning the gains and losses that are likely to apply to individual households under different revaluation scenarios. The hon. Member for Brent, East quoted my hon. Friend as saying in a meeting with SIGOMA that there were just over 2 million losers. The Halifax, however, estimates that there might be more gainers than losers under revaluation. That certainly implies that there must be at least 2.2 million people—perhaps more—who would have gained from revaluation, had it taken place.
The House is owed a detailed statement setting out the full implications of postponement. I therefore hope that my hon. Friend the Minister for Local Government will be willing to publish the evidence that he and my right hon. Friend the Minister of Communities and Local Government saw before they decided to postpone revaluation. As my hon. Friend acknowledged, the change of policy that he outlined will require new legislation. We deserve to have full information on the impact and implications of the changes when this House considers that legislation.
Local government provides a range of absolutely vital services, and it is important that it has a finance system that underpins its work and enables it to get on with its job effectively. The Lyons inquiry is rightly looking at a long term, more sustainable basis for local government finance, and we should give that inquiry full support. We should encourage Sir Michael to come forward with practical and, where appropriate, radical proposals, and I hope that the House will have a good opportunity to debate them in the reasonably near future. It is in all our interests to have a more sound, more sustainable basis for the long-term future of local government funding.
I want to take this opportunity to share with the House the impact that council tax revaluation has already had on Wales. That impact unquestionably serves as a warning to the people of England of what will occur if council tax revaluation goes ahead here. Wales was ripped off, tucked up and had over. That will happen here and we will face the same hardships as our Welsh brethren if we are not very careful. For the benefit of those in the House who are unfamiliar with this tale of Labour greed and incompetence, I will explain why the council tax revaluation has failed in Wales and consequently left hundreds of thousands of hard-working home owners greatly out of pocket.
During the past eight years and even before taking into account the impact of revaluation in this financial year, council tax has risen by an average of £426 per household—a whopping 86 per cent. Areas such as Blaenau Gwent have faced increases of £546, which is 12 times the rate of inflation. Monmouthshire has suffered council tax rises of £514, which equates to a 128 per cent. increase since 1997, or 13 times the rate of inflation. In Swansea, council tax has increased by 84 per cent.; in Cardiff it is up by 80 per cent. Pembrokeshire has experienced the lowest increase—just 57 per cent.—but that is little consolation to Pembrokeshire home owners, who still have to find an extra £256.
The move towards revaluation began in September 2000, when the National Assembly for Wales began its consultation on possible changes to local government finance in Wales. That consultation was superseded by the introduction of the Local Government Act 2003. As the House is aware, the outcome was that all homes in Wales were assessed with a view to being rebanded. At the time, the Opposition opposed the measure, and we continue to believe that this mistake has left Welsh home owners with the burden of more taxation than is either appropriate or necessary.
The hon. Gentleman has raised an important point. It is a fact that the Welsh Assembly policy of rebanding and revaluation dates from a policy announcement of March 2002 by the Liberal Democrat and Labour Administration.
The hon. Gentleman is absolutely right and I am grateful for that intervention; I should perhaps have pointed the finger more forcefully at the Labour and Liberal Democrat Benches.
I can understand why the hon. Gentleman wanted to intervene. His own county council, Wrexham, has an increase of eight times inflation. The only point that I would raise in response may be less than polite, Mr. Deputy Speaker, so I shall resist.
The hon. Gentleman fails to bring to the House's attention how much lower council tax is in Wales, after revaluation, than it is in England. In fact, the average council tax payment in England is £1,009, whereas it is £790 in Wales, after revaluation. On average, council tax in England is 24 per cent. more than in Wales.
I understand why the hon. Lady wants to make that point, but she faces a difficult time over this matter. Cardiff has seen increases of more than eight times inflation. The hon. Lady's city has a total population of 136,575, but 67,775 people have had their council tax moved up one band; 17,923 by two bands; 921 by three; and 58 by four bands or more. Perhaps she will tell us whether she lives in one of those houses.
I should draw the hon. Gentleman's attention to the fact that a band D household in Cardiff, after revaluation, pays £872 compared with a band D household in Bristol, which pays £1,296. My point is that council tax in Wales has been kept consistently lower than in England. It is important that the hon. Gentleman acknowledges that point in his discussion.
The hon. Lady will have to make that point again and again. I believe that her constituents will be dismayed at the increases, though I understand what she is saying.
In this very Chamber in 2003, on Second Reading of the Local Government Bill, Mr. Raynsford, then Minister for Local Government—it is clear from his speech today that he has subsequently become very bitter—pledged that revaluation
"will not lead to increases in council tax yield".—[Hansard, 7 January, 2003; Vol. 397, c. 53.]
"There should not be any change in the amount of council tax collected."
The sentiment was echoed in Cardiff when the process of rebranding began in 2003. The Welsh Assembly Minister for Finance, Local Government and Public Services, Sue Essex, assured us that the rebranding would not lead to increases in taxation. She stated that revaluation
"is not a means of increasing the total amount of council tax raised and it doesn't follow that all tax bills will rise. There will be movements within the Banding system and changes in bills, but we estimate that half of Welsh homes will remain in the same Band, around a quarter will move down the Banding system and a similar number will move up."
I am most grateful to my hon. Friend for giving way on that point and for reminding us that Opposition Members of the Welsh Assembly supported the Minister when she went ahead with revaluation on the basis that she was telling us the full truth. The mistake that we made was failing to realise that we were being led up the river by the Welsh Labour Administration in the Assembly.
My hon. Friend is absolutely right. I was about to say that those statements and promises, well meaning though they might have been, were absolutely untrue. It demonstrates how Labour council tax revaluations deceived the people of Wales.
The statistics clearly contradict the assertion made by Sue Essex in 2003 that a quarter of Welsh households would move down a banding scale and a quarter would move up. They also contradict what was promised by the then Local Government Minister and by the White Paper that preceded the Local Government Act. In 2004, Assembly Member, Sue Essex, tried to shift the blame on to Whitehall, commenting that
"revaluation in itself was not undertaken as a reason to increase council tax levels."
However, the Deputy Prime Minister, whose Department was responsible for the Local Government Act, disagreed, admitting that the Welsh Assembly had decided to use revaluation "to raise tax revenue". Additionally, the ODPM claimed in January 2005:
"Revaluation in Wales has been a good example of shared policy development between the Welsh Assembly Government, local government in Wales and the Valuation Office Agency."
The council tax revaluation in Wales has demonstrated that the rises that it has led to are harming the poorest in Wales the most.
That poses the question of what would have been a bad policy development, if that was a good one. Surely the answer to Julie Morgan is that it provides no comfort whatever to someone who has been shifted up a couple of bands to know that a band D property in England would have been even more expensive. That is the point—they have been ripped off big time.
My hon. Friend is absolutely right. If we bear in mind the fact that Powys is one of the poorest, if not the poorest, areas in the whole of the UK, that amounts to a double whammy or even worse.
I welcome the fact that the Labour Administrations in Whitehall and Cardiff have recognised the financial insecurity that the rises are causing the people of Wales, but I do not think that the extra £11 million proposed for transitional relief will make enough of a difference, especially when one considers the fact that most of that relief is available for one year only. In addition, by 2008, the revaluation will lead to a further 5 per cent. of Welsh home owners paying higher council tax bills as a result of moving upwards into another band. That is why we want to end the need for those increases—by stopping the planned upward movements by more than one band.
My hon. Friend Mr. Crabb raised the issue on the Floor of the House last July, but it is worth noting again that between 1998 and 2004 local government had to increase council tax in Wales by 78 per cent. in order to fund services. The grant given to local councils in Wales from central Government increased by only 40 per cent. That is why Welsh council tax payers are now paying for some 20 per cent. of all local government expenditure, as opposed to the 15 per cent. that they were paying back in 1997.
My hon. Friend also remarked that the people of Wales do not think that the rises in council tax have led to significant improvements in services. No Government can justify taking more money from the public and not providing hard-pressed taxpayers with adequate value for money. In Wales, despite the increases in council tax, hospital waiting times are still the highest in Britain and education standards are still the lowest in Britain. Welsh home owners are paying for increased red tape, paying for more waste and paying for further misadministration. That is the sad truth behind revaluation and the truth that the Labour Government are trying to shield from us.
Having drawn to the House's attention the problems that the revaluation of council tax in Wales has caused, it is important to highlight the lessons that must be learned. First, we have seen added financial misery, to hundreds of thousands of people. Secondly, the Labour Government revaluation can never be revenue-neutral, as the taxpayer will always have to pay more. Thirdly, the revaluation legislation muddies the waters of responsibility and it is not always clear who is responsible for the bills that have been created. We find ourselves asking who will take responsibility. The only thing that I can say with some certainty is that it is the Labour party that must take the blame.
I shall address some of the points made in the debate and then make one point of my own. When the Minister winds up, I hope that he will take up a point that the Minister of State mentioned when he opened the debate, which was of great interest to those of us who spent a long time in local government. He implied that the financial settlement for local government this year is likely to be ungenerous, especially outside education. The figure of 1.5 per cent. has been bandied around, and that would cause extreme difficulties, especially for district councils, and lead to severe reductions in services.
Mr. Raynsford mentioned pensioners and council tax benefits. Large numbers of pensioners do not receive council tax benefits, for two reasons. First, as the right hon. Gentleman said, many do not claim the benefit. Secondly, even quite modest savings take pensioners above the capital limit. Both factors put together mean that many pensioners do not receive council tax benefits, as my hon. Friend Sarah Teather said.
The right hon. Member for Greenwich and Woolwich and Mr. Betts made the point about local income tax and foreign nationals, but that point is easily answered. A foreign national is either resident for income tax purposes or not. If resident for income tax purposes, a foreign national will pay local income tax. For those not resident for income tax purposes, we will introduce a second home tax based on land value. That will not require all properties in the country to be valued—only those used as second homes.
When a local authority does not at the beginning of the year know who will occupy a particular property, how will it be able to make the appropriate valuation on which the supposed land value tax will apply?
It will work on the previous year's figures. The Treasury will guarantee the funding on the previous year's figures when working out the funding on the following year's grant. That is standard practice in local government.
My concern is not the effect of the local income tax on the overseas visitor resident here, but its effect on two schoolteachers—or two nurses, two doctors or two firemen—on average salaries who share a flat. Under the Liberal Democrats' scheme, such people would have to pay far more than under the council tax. Is the hon. Gentleman not concerned about those groups?
As my hon. Friend the Member for Brent, East said, whether such people would pay more depends on their incomes and what band house they live in now. Under a local income tax, people living in a band H house can earn up to £60,000 between them before losing out. The hon. Gentleman should remember that average household income is £26,000.
The hon. Member for Sheffield, Attercliffe, who is unfortunately not in his place, claimed that the council tax is not regressive. In fact, it is the most regressive major tax and it makes the tax system as a whole regressive. That is why replacing it with a local income tax would make the whole system progressive.
May I remind the hon. Gentleman that during the election campaign the leader of his party was gravely embarrassed when he logged on to the Liberal Democrats' own website on air and made some comparisons using the website's calculator. In nearly every case with more than one wage earner in the household, the local income tax would have cost people a great deal more. The hon. Gentleman cannot escape that fact, however much he tries to spin it.
I repeat that the cost will depend on the band of house that people already occupy. People who live together in large houses are, by definition, in high band houses, so the comparison with the average house is not valid.
I come to my single main point. Contrary to what the right hon. Member for Greenwich and Woolwich said, this debate is not only about revaluation. It is also about the Lyons review. As several hon. Members have said, both the motion and the amendment mention the important point about asking the Lyons review to consider the strategic role and accountability of local government, so that local government finance can be reviewed in the context of the functions of local government. One might point out that the Government should have realised from the beginning that the options for local government finance cannot be understood without understanding and making choices about local government function. The obvious question is why the Government have taken two and a half years—since the beginning of the balance of funding review—to realise that obvious fact.
There is a more fundamental and important point. The functions, role and accountability of local government are not a matter for expert committees; they are political questions that the Government must make up their mind about rather than asking somebody else. The question for the Government and for the Labour party is: what should be the proper relationship between central and local government?
There are three important aspects of that—three central questions that the Government need to sort out. First, do the Government believe in pluralism? Do they believe that local government should be able to follow its own political objectives and not merely be an agent of national Government? More profoundly, do they believe that local government is valuable because it can act as a check and a balance on central power—that it is a way of dispersing power in society? There is an historical problem for both parties. For the Conservatives, there is the problem of the Greater London council, which they abolished precisely because it provided an alternative political base and political opposition to the Government. Many people disagreed with what Mr. Livingstone was doing with the GLC at the time—many still do—but supported his campaign to maintain the existence of the council because it provided an alternative centre of political power.
For the Labour party, the equivalent problem was the Militant Tendency in Liverpool. There was a great speech by Mr. Kinnock at the Blackpool conference—
Sorry, it was Bournemouth. It is good to see that there is an even greater political nerd than me in the Chamber.
There is a direct link between the political embarrassment of those times and the constitutional centralisation that the Labour party has followed in office since 1997. Both those troublesome local authorities could have been dealt with by a simple solution: the introduction of proportional representation in local government elections. However, that solution would bring political embarrassment to both sides of the House, because it would mean further questions about the legitimacy of elections to this place.
My first central question was whether the Government believe in pluralism. Do they believe in the dispersal of power through local government? We do. The second fundamental question for the Government to answer instead of putting things off to the Lyons review is whether they believe that local government can provide experiment and variety in policy making. There is a temptation for central Government to believe that they are omniscient, that they can solve all problems from Whitehall and impose uniform solutions on the country, but everyone in local government knows that that is not the case.
In the original remit for the Lyons review, Sir Michael was charged with considering the implications for the financing of possible elected regional assemblies. In the light of the vote in north-east England, does the hon. Gentleman still support that remit of the Lyons inquiry?
The question of regional assemblies still needs to be in the Lyons remit, but the Government should make some political judgments before the report to give Lyons more direction.
To return to my point about experiment and variety, schools offer an example. Policies such as school choice work in densely populated urban areas with good public transport systems—at least, they are good from the point of view of people in the rest of the country. Those policies would not necessarily work in an area such as rural Norfolk, where the population is widely dispersed and school choice is limited due to transport difficulties. The Government and the Labour party must wean themselves off easy headlines such as, "Minister steps in to solve problem" or "Minister takes charge". It is easy to obtain such headlines, but the long-term consequence of seeking them is to undermine the ability of local government to experiment and work out solutions for its area.
The third fundamental question for the Government is whether they believe that local government provides a place where there can be democratic accountability and democratic participation. Every power of national Government—to appoint people, to control total budgets and to direct their budgets—should also be reviewed, to consider whether those powers could be better used and allocated locally, especially to local government. So the Government need to work out their own political direction first and to understand local government in terms of pluralism, experimentation and democratic accountability. If they get that done, they can move on to the Lyons report. The Liberal Democrats know where we stand on all those questions; we do not need an expert to tell us. I just hope that the Government work out their own position sooner than the next election.
This has been an interesting and revealing debate. All Opposition Members are only too well aware of the worry that has been felt by our constituents while the revaluation of their homes has been hanging over their heads. The main concern every year when councils set their budgets is how much the council tax will go up. In particular, retired people on modest fixed incomes have seen their disposable income reduce year on year. Many of them have been living in the same homes for decades: homes where they have brought up their families, homes that hold a lifetime of memories, homes that have increased in value beyond their wildest dreams and because of that fact—one that is outside their control, incidentally—homes that attract such high council tax bills that they can scarcely afford to continue living in them.
What of young families, with all the attendant expense of bringing up children, whose clothes seem to either wear out or be grown out of before they even reach the washing machine, mortgages with creeping interest rates and the increased costs of running the family car and buying season tickets to work— all the normal nuts-and-bolts expenses of everyday life? A huge hike in council tax that results from property revaluation and goes up one or more bands, as the Welsh experience indicates, could have been the straw that broke the camel's back for some family budgets.
The knowledge that the Government were planning to revalue all properties has caused enormous concern and people are oh so relieved at the Government's recent policy U-turn—at least for the time being. But, for how long will the revaluation be postponed? We have heard that Sir Michael Lyons recommended that it should not be postponed for longer than a year. We know that a Bill is coming up soon. So the revaluation has not been cancelled; it is still hanging there like the sword of Damocles—it has not gone away. The Council Tax (New Valuation Lists for England) Bill will allow the Government to determine the date of the revaluation of properties in England by secondary legislation. The Government will be able to slip it through with little debate in Parliament.
Let us be absolutely clear what the Opposition's policy is on this matter. The hon. Lady is speaking to a motion that refers to cancelling the revaluation. Does that mean permanently cancelling it? In other words, there would never be a revaluation, according to Conservative party policy.
The hon. Gentleman will know that, in politics, we never say never, but our policy is to cancel the revaluation. If he will bear with me for a moment, he will learn more of our policy.
The Minister, in his opening remarks, apologised for making the announcement in the recess, but we were refused an urgent question when this Parliament began and he could have made a statement. The Government are being called to account today only because there is an Opposition debate on the subject.
The Lyons report refers to the complexity of local government funding, the strategic and expanding role and functions of local government, devolution, decentralisation and more accountability. We now have communities that are far more diverse, with much higher expectations of what their councils can provide for them. Local government needs to foster partnerships with the local community, the police, health authorities and all the other statutory bodies and the private sector in local area agreements. That will happen by 2007. There are already several highly successful strategic partnerships, and my council of Havering has the successful Havering strategic partnership. All its partners have an enormous amount of good will and wish to contribute in whatever way they can to try to improve services for the benefit of local people.
My hon. Friend Andrew Selous, who is not in the Chamber, referred to the need for the health service and educational services to work together to help special needs children. It is difficult to meet the growing needs of the ever-increasing numbers of children with special educational needs, many of which arise from medical conditions. Speech therapy, especially, has been under-provided for many decades. I examined the matter a year or so ago to determine how many colleges provided courses for speech therapists, whether those courses were fully attended and whether there was an unusually high drop-out rate. I did not find any problems with the training, but there is no tracking of what happens to qualified speech therapists after they have finished their courses. Where do they go? They do not go into education—certainly not the state sector—or the national health service, so where all the qualified speech therapists go is a mystery. Overcoming such a problem is an example of the way in which councils, health services and other partners could work together.
The Minister said that a process of revaluing to align property values with council tax was fair, but how often would properties have to be revalued to make the system continuously fair? What will happen if property values flatline for several years, as they have in Westminster? How would local government funding be adjusted to take account of a fall in property prices?
The Minister blamed councils for high council tax, which gave the impression that councils have the freedom to set their council tax at a level of their choice. However, we all know that central Government funding comes with many strings—or statutory duties—attached and with so much ring-fencing that only a small proportion of councils' funding represents disposable income. Their freedom to set their budgets is thus severely restricted. They have of course received extra money, but the cost of their additional statutory duties, which are unfunded, has greatly outstripped that increase.
Children's services, especially, have been affected enormously. For example, my local authority has somehow to find extra money when families with children with complex and costly needs move to it because that is its statutory duty. Councils thus have little leeway to provide additional services. Services such as Streetcare get squeezed because of the demands of statutory services.
That is a very good point. I am glad that the hon. Gentleman makes it because local government funding cannot be considered in isolation. It must be examined in tandem with what local government does and how it does it. Local government needs more freedom to decide what it does without diktat from central Government.
In 1997 Labour inherited a system that was working. Most people understood and accepted it, so what did Labour do? It seized on council tax payers and made them the milch cows of the nation. Council tax has gone up 76 per cent. in England and 86 per cent. in Wales. The Government who promised not to increase income tax have put up council tax by the equivalent of 3 per cent. on income tax. More people are now eligible for council tax benefit, but the complexity of the forms means that fewer than two in three eligible pensioners claim it.
We call on the Government to cancel revaluation in England, to face the music over the problems of the flawed Welsh revaluation and to admit that business rate revaluation increased costs for medium and large businesses, irrespective of the take-up of rate relief by small businesses. We call on them to be transparent about their intentions for reform in Northern Ireland and the effect that that will have on future funding for England, and about local government restructuring. The Government's policies are mired in confusion, but council tax payers are not confused—they know that they are about to be mugged again.
My hon. Friend the Minister for Local Government opened his speech by saying that he was genuinely excited at the prospect of today's debate. Some of our colleagues suggested that perhaps he should get out more, but I know what he meant. The tone and the content of the debate prove that this has been a useful opportunity.
Before I respond to specific issues raised by hon. Members, I feel obliged to emphasise what my hon. Friend said about council tax. He stressed three aspects that I wish to address: how the Government are already helping many people, not least pensioners, with their council tax bills; how we are taking firm action to ensure that council tax levels stay low; and how we are taking forward reform of the system through the inquiry by Sir Michael Lyons. Our aim is to ensure that high-quality services can be funded in a way that is both fair and sustainable in the long term.
First, let me remind the House how much the Government are already doing to help people to pay their council tax bills. Help with those bills is available to those who are least well off through council tax benefit—an important part of the picture. In 2005–06, of the total council tax requirement of £21.3 billion, about £3 billion, or 14 per cent., is being met through council tax benefit. The operation of the council tax benefit scheme is the responsibility of my right hon. and hon. Friends at the Department for Work and Pensions; however, both they and we at the Office of the Deputy Prime Minister are concerned that many people, especially pensioners, are not taking up their entitlement. Help is being offered to pensioners to try to resolve that. The focus in the short term is, rightly, on getting better take-up of council tax benefit, but for the longer term the DWP aims to make the council tax benefit system as automatic as possible.
In addition to council tax benefit, the Government are giving pensioners extra money specifically to help with council tax bills. We gave £100 to households with someone aged 70 or over in 2004–05, and in 2005–06, households with someone aged over 65 will receive £200—unless, of course, they are already entitled to a 100 per cent. rebate. We are giving a lot of additional help to pensioners generally, spending almost £11 billion more on pensioners in 2005–06 than in 1997 as a result of measures introduced since then. The help we are giving includes the £200 winter fuel payment for everyone aged over 60, which benefits more than 11 million pensioners; there will be free local area off-peak bus travel for pensioners from April 2006; television licences are free for anyone aged over 75, which benefits more than 4 million people; value added tax on fuel has been reduced from 8 per cent. to 5 per cent.; the over-60s receive free eye tests; and women aged 50 to 70 receive free breast screening. There have been record increases in the basic state pension, and pension credit, which guarantees at least £109 a week for single pensioners and £167 a week for couples from April this year, is set to rise in line with average earnings until 2008.
Secondly, we are working hard to keep council tax down. We delivered another good settlement for local government in 2005–06—one that ensures that councils can provide a high level of service. We have provided an extra £3.5 billion—6.3 per cent. more than in 2004–05. In total, local government has had a 33 per cent. real-terms increase in funding since 1997.
Thirdly, we are working to reform the system. The Government acknowledge that the current system is not perfect. As we said in response to the balance of funding review, our position is that council tax should be retained, but reformed. Sir Michael Lyons is already examining how the council tax system might be reformed and he is aware of the issues that have been raised by pensioner groups and individual pensioners. It is, however, entirely right that before giving us his recommendations on council tax, he take a step back to consider the current and emerging strategic role of local government in the context of national and local priorities for local services. Any proposals for reform of the funding system should be set firmly and explicitly in the wider context of a clear shared understanding of the role of local government and of councils' accountability to service users, residents and taxpayers.
Turning to the debate itself, Sarah Teather, the Liberal Democrat spokesperson, has an amazing talent for causing outrage among Conservative Members, almost regardless of what she says. However, she appeased them somewhat by announcing that she has persuaded her colleagues to vote with the Conservative party today. She announced that the poorest pensioners must pay 10 per cent. of their income as council tax. My right hon. Friend Mr. Raynsford pointed out that that was inaccurate, and it was not the case. The hon. Lady said that a local income tax would be simpler to operate, but the balance of funding review chaired by my right hon. Friend the Member for Greenwich and Woolwich concluded that local income tax should be introduced only as a supplement to council tax to shift the balance of funding. We have therefore asked Sir Michael Lyons to look into a supplementary local income tax as part of his inquiry into local government funding. The balance of funding report flagged up the fact that considerable further work would be required to address substantial technical and administrative issues and costs associated with local income tax as well as the impact on individuals and employers before firm conclusions could be reached on its feasibility or desirability.
My hon. Friend Dr. Whitehead skilfully outlined the weakness of the position adopted by the official Opposition, and made some astute points, a number of which will be taken into consideration by Sir Michael Lyons.
Mr. Bone told us about his listening campaign, but he clearly did not listen to the intervention of my hon. Friend Mr. Betts, which he curtly dismissed as spin rather than a point of information. However, I acknowledge the genuine appeal that he made on behalf of local government. His suggestion that revaluation could provide a vehicle for local authorities to push up council tax was countered by my hon. Friend the Minister for Local Government, who outlined the capping powers that the Government have at their disposal and which they have used, and will use again in the event that councils breach expected limits.
My hon. Friend the Member for Sheffield, Attercliffe challenged the fairness of the Liberal Democrats' flagship policy, outlined its weaknesses and made a number of interesting and thoughtful points. My hon. Friend the Minister for Local Government has read the Local Government Information Unit pamphlet, and the key question of the lower income threshold raised by my hon. Friend the Member for Sheffield, Attercliffe is being examined by Sir Michael Lyons.
In his inimitable style, Mr. Binley challenged the Government to respond to concerns about his local council tax rates. I am sorry, but we do not recognise the figure that he cited of 0.9 per cent. If he writes to me, we can examine what Northampton received, whether at the level of the shire, the district or Northampton, South itself. He sought an expression of humility from the Government. While there is genuine humility on the part of the Government its manifestation is not always apparent and it is not always reported.
My right hon. Friend the Member for Greenwich and Woolwich spoke, as ever, with the authority that becomes someone with his experience. I acknowledge his strong feelings on the issue and his disagreement with the Government's position although, naturally, that is disappointing. Bill Wiggin took us back to Wales. If he will forgive me, I will not go there as time is against me and Welsh issues were fully aired at the beginning of our debate in a series of interventions. I am not sure if he deliberately used the word "rebranding" as opposed to "rebanding", but I understood his point.
David Howarth delivered his own winding-up speech, the point of which was entirely valid. There are political choices to be made and we will have to make them, but after we have taken advice.
In conclusion, today's debate has been a good opportunity for the Government to state their position. There will be further opportunities when the House debates the Council Tax (New Valuation Lists for England) Bill in due course. The future of local government is crucial for the future well-being of the country and the Government are determined to create a strong and sustainable role for it. We are convinced that we have the right approach for the reform of local government funding.
We need a clear and complete picture of what we want from local government—only then can we tackle the question of how it should be funded. We are confident that Sir Michael Lyons's extended work will provide an opportunity for fundamental and lasting reform. I invite the House to give him its full support in his endeavour, to vote to oppose the motion tabled by the Opposition and to support the amendment in my name and that of my right hon. and hon. Friends.
Question accordingly negatived.
Question, That the proposed words be there added, put forthwith, pursuant to
Mr. Deputy Speaker forthwith declared the main Question, as amended, to be agreed to.
That this House welcomes the Government's decision to postpone the revaluation of council tax in England in order that it may take full account of Sir Michael Lyons's further work on the functions of local government as well as its financing; supports the Government's extension of Sir Michael's terms of reference, which will enable him to review the strategic role of local government and therefore set any proposals for the reform of the funding system within the context of that role and of councils' accountability; recognises that the devolution settlement for Wales gives responsibility for council tax matters to the National Assembly for Wales, and that the context for rating reform in Northern Ireland is very different from that in Great Britain; refutes any suggestion that Northern Ireland is being used as a testing ground for reform in England; and looks forward to the final report of Sir Michael Lyons's inquiry which it is confident will provide a real opportunity for fundamental and lasting reform.